News / Private competition not the problem – US truckers need to change, structurally

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In his recent diagnosis of the state of the US trucking industry, American Trucking Associations (ATA) chief economist Bob Costello brought up a factor rarely mentioned in the discussion over the plight of truckload operators: loss of traffic to private truck fleets.

“One of the reasons why freight hasn’t recovered as much is because private fleets have taken some of the share, which by the way, has not happened in a very long time,” he told the ATA Management Conference and Exhibition this month.

To boost network utilisation, some shippers have been courting others to give them their traffic. Arguably the most aggressive has been Walmart, which launched several initiatives to draw in shipments from other sellers. Having established its fulfilment service in 2020, the retailing giant has increasingly opened its logistics infrastructure to online merchants.

In August, Walmart announced it was inviting e-commerce firms to use its ocean shipping infrastructure to move merchandise from China to the US. Walmart Cross Border is a port-to-door service, where shipments are fed into Walmart’s US fulfilment network at the port.

Notwithstanding misgivings about handing freight and data to large competitors, such offerings have resonated with shippers and private fleets have been growing. According to a survey last year by the National Private Truck Council (NPTC), outbound shipments handled by private fleets rose to 75%, the highest in the survey’s history.

On the basis of Federal Motor Carrier Safety Administration Numbers, the NPTC counted 940,280 registered private fleets last year, compared with 1.08 million for-hire carriers, about 90% of which operate fleets of 20 trucks or fewer.

Walmart’s operation probably puts it in the top five of US trucking firms, said Satish Jindel, founder and president of ShipMatrix and SJ Consulting Group.

The challenges of the pandemic convinced many cargo owners of the need to secure access to capacity at affordable cost. Apart from a rise in private fleets, this led to the emergence of collaborative schemes for shippers to pool traffic.

Fashion brand retailer Gap launched a fulfilment service called GPS Platform Services, offering other retailers services that included next-day and two-day shipping, short-term storage, cross-docking and reverse logistics.

The poster child of the collaborative approach was the Quiet Logistics venture of fashion retail firm American Eagle Outfitters, which bought a couple of 3PLs (AirTerra and Quiet Logistics) in 2021 and built up a collaborative platform for itself and other shippers to use some 40 truckers for their combined traffic.

The scheme attracted about 60 participants, from small retailers to brands like Peloton, Steve Madden and Li & Fung. It also signed deals with Pitney-Bowes and DHL eCommerce Solutions for value-added services.

But despite the attention it garnered, the project failed to generate enough e-commerce fulfilment traffic, prompting American Eagle to “restructure the venture” last year, as it took a $98.3m hit in impairment and restructuring charges.

So will the appeal of private fleets also wane? Mr Costello reckons shippers will become less enthusiastic. He said: “I do think longer term, the more they grow those private fleets they’re going to have some of the issues that […] for-hire companies have.”

Mr Jindel agrees. “These things are not static. They will change,” he predicted. But, overall, private fleets make sense for large companies; smaller shippers are better off using third-party providers, he added.

He does not view the current appeal of private fleets, nor the state of the economy, as root causes for the travails of the trucking industry. Trucking providers should see how they can differentiate themselves in terms of service and operational structure, he says.

“Truckload carriers have been stagnant. There has been no change. Some use technology, but that’s cosmetic. They need to change structurally, in their pricing and service.”

He pointed to the pricing model, which is based on distance without regard to the time spent covering it, which fails to factor-in disruption from weather and traffic conditions.

“They’ve not figured out how to build that into the price,” he said. “Industrial truckload pricing is a broken concept.”