VOL. 126 | NO. 29 | Friday, February 11, 2011
FedEx Freight CFO Aims to Change LTL Structure
By Bill Dries
The chief financial officer of FedEx Freight Corp. wants to try to make the LTL (less than truckload) freight business more like the package business.
But Don C. Brown admits some customers will be more than hesitant to leave behind the complex system of rates and schedules.
For carriers, the dilemma has, until recently, been pricing.
Speaking to the monthly meeting of The Traffic Club of Memphis, Brown said what was a $34 billion industry in 2008 had become a $25 billion industry by the end of 2010.
Some carriers reacted by dropping prices and hoping it would earn them more business.
“Some tried to hold onto pricing and then they saw the volume pressure,” Brown said. “At the end of the day, we trade share around amongst the various competitors in the LTL industry. And we operated as a group at a negative 5 percent margin. We all know we cannot continue to operate without generated cash back into the business.”
Brown likened it to an Olympic-sized swimming pool that has lost a lot of water and the swimmers are struggling to deal with the loss of capacity. The capacity has shown some increase, which Brown likened to someone running a garden hose to the pool.
The complication with customers, however, is “a lot of legacy practices” that Brown said date back to the days of the old federal Interstate Commerce Commission.
“It’s hard in the LTL industry to give a customer an accurate bill, just because of the way we’re set up,” Brown said. “Customers tell us about that. We’ve got to make this industry more like the package business.”
But not only have some LTL carriers clung to that legacy, so have some customers “who have built their transportation management system on the old complexity and legacy,” Brown told the group.
“And they are going to tell us if we want to do business with them, we’re going to have to bid ... on the old (lower) rates. We’re going to have to make a decision with those customers if we want to play in that arena and be able to continue to support that complexity.
“But we also need to get to the point ... where pricing looks an awful lot like the package world today and customers can choose to go there.”
FedEx Freight, a key segment of the Memphis-based shipping giant FedEx Corp., was formed in 2001 with the acquisition of Viking Freight and American Freightways. It added Watkins Motor Lines in 2006 becoming FedEx National LTL.
The two parts of FedEx merged with a September announcement that took effect at the end of January.
It brought together long-haul and short-haul services with “varying speed in one network,” and doubt from analysts has prompted Brown to react.
“They’re selling the industry short because everybody in the industry handles short-haul and long-haul in the same network,” he said. “The difference is that we are picking those up now through one pick up and delivery network. … The difference here is that you get a choice.”