-- Rising costs are pushing small truckers into bankruptcy or deals with bigger players
-- To gain efficiency, freight giants will make alliances with ocean shippers and railroads
In just three years, trucking giant Yellow Corp. (YELL) has seen a tenfold increase in customers that book and track shipments solely via the Internet. And as the shift continues, the savings are multiplying. An online order costs a mere 6 cents to process, vs. $1.50 the old way. "There's no reason we won't double our number of Internet customers in 2003," says Yellow CEO William D. Zollars.
The boom in Internet bookings at Yellow and its rivals is a ray of sunshine for an industry facing rising costs and a slow growth outlook. After contracting in the 2001 recession, industry revenue rebounded slightly in 2002, to $252 billion. It is forecast to hit $262 billion this year. But the sales growth may not be enough to cover soaring costs of insurance and security. More than 8,000 small companies succumbed to those pressures in the past two years.
Painful as it is, the restructuring brings new efficiencies. The surviving small fry are aligning with a handful of big players such as Yellow, Schneider National, FedEx (FDX), and UPS (UPS). The big players in turn have become general contractors, ever searching for the least expensive route. Today an MP3 player may travel via boat, plane, railroad, and truck before hitting a store shelf, with every step of its journey orchestrated by, say, United Parcel Service.
The trend has turned once-bitter rivals into allies. UPS now contracts with ocean freighters to move packages part of the way. "Retailers can save 20% or more by moving merchandise across the country via rail and then transferring to trucks for store delivery," says Matthew K. Rose, CEO of Burlington Northern Santa Fe Corp. (BNI), the country's largest railroad. Trucking giant Schneider National Inc. estimates that it's now loading 20% more packages onto railroads than it did three years ago. Says Schneider President and CEO Christopher Lofgren: "The railroads have become our partners rather than our competitors."
The alliances help shippers stay competitive despite cost hikes. Insurance for everything from health care to worker's compensation has risen 15% a year for three years and could stay on pace in 2003. Then there is the added cost of security. "It represents a new level of administrative complexity, which translates into higher costs," says Jim Winchester, a transportation analyst at Lazard LLC. Cargo entering a U.S. port must be reported in detail to customs officials 24 hours in advance.
That's why small operators are signing up to haul for giants such as Schneider. The Green Bay (Wis.)-based shipper has recently seen the percentage of its fleet composed of independent drivers climb to 20% from 12%. "They pull their own trailers, but with our logos," says Lofgren. Such cooperation is helping this intensely competitive industry keep rolling. By Charles Haddad in Atlanta