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Mar.7, 2016

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SURFACE & DOMESTIC TRANSPORTATION TRUCKING | RAIL | INTERMODAL | AIR & EXPEDITED | DISTRIBUTION 94 THE JOURNAL OF COMMERCE www.joc.com MARCH 7.2016 By William B. Cassidy THIRD -PARTY LOGISTICS COMPANIES are picking up so much less-than-truckload freight these days they could be called "3PLTLs." They already control about 25 percent of the LTL market, and if C.H. Robinson's 2015 performance is any barometer, that percentage is set to rise as new technolo - gies and entrants disrupt trucking's oldest business model. C.H. Robinson has more than doubled its LTL net revenue over the past five years. The largest U.S. logistics provider increased its LTL shipment volume by 36 percent year-over-year in the fourth quarter, while LTL net revenue jumped 41.4 percent to $89 million. For the full year, the logistics company's LTL net revenue rose 39.3 per- cent to $360.7 million. "We are the largest non-asset LTL pro- vider in North America by a wide margin, and our go-to-market strategy has proved to be a winning one with customers and pro- viders," CEO John Wiehoff said in January. In the fourth quarter, C.H. Robinson's organic LTL volume, excluding volume from online brokerage Freightquote.com, acquired in 2015, rose 17 percent. There may be no clearer sign of the growing role non- asset logistics providers are playing in the LTL market, except perhaps XPO Logistics' acquisition of Con-way Freight, the second- largest LTL carrier, last fall. XPO, two years ago a purely non-asset company, now has LTL operations in Europe and the U.S., as well as intermodal assets. In 2016, 3PLs such as C.H. Robinson and XPO will make more inroads into the LTL market, pushing their share of LTL revenue beyond 25 percent, and pushing traditional LTL carriers to rethink their long-term strategies, according to SJ Consulting Group. C.H. Robinson is "still having suc- cess converting customers who previously shipped direct with LTL carriers to their platforms," said Michael Scheid, senior ana- lyst at the Pittsburgh-based consulting firm. Scheid's statement holds true for other 3PLs and brokers. "It's not just Freightquote that's growing. It's their traditional LTL platform, which focuses on larger shippers," he said. Volumes are dropping at many of the large, traditional, asset-based LTL carri- ers. At UPS Freight, LTL shipments per day declined 9.7 percent year-over-year in the fourth quarter, while YRC Freight's ship- ments per day fell 6.9 percent. Tonnage per day at ABF Freight System was down 4.9 percent year-over-year in the fourth quarter. At Saia, shipments were off 6.2 per- cent from a year earlier. Reasons for a general year-over-year decline in LTL volumes include a con- traction in industrial production in the second half of 2015, a normal seasonal decline, tough comparisons with a more economically vibrant second half of 2014, and possibly the rejection of less-profitable freight by carriers or consolidation of pallet- ized shipments into truckloads. Still, 3PLs are moving more LTL pallets, and more 3PLs and brokers are pursuing LTL business. More than 70 percent of the 3PLs included in the Transportation Intermediaries Association's third-quarter benchmarking survey said they handled LTL shipments. That number was closer to 30 percent before the 2008-09 recession. Why would 3PLs want that LTL freight? They're able to profit from it. Although LTL freight accounted for about 9 percent of the revenue of the 3PLs surveyed by TIA, and truckload 69 percent, the average profit margin on those LTL shipments climbed to 20 percent in the third quarter of 2015. That compares with a truckload margin of 15.1 percent. "We look at LTL as an attractive busi- ness for a number of reasons," XPO Logistics CEO Bradley S. Jacobs said last fall after purchasing Europe's Norbert Dentressan- gle and U.S.-based Con-way. "E-commerce is growing super-fast, and there are an increasing number of online orders that are too big for the parcel carriers but don't require the white glove treatment of last- mile logistics." Those orders are a good fit for LTL, he said. "We also believe scale and technology will sep- arate the winners from non-winners in LTL, and we bring both size and technology." Shippers already working with 3PLs such as XPO on other supply-chain fronts expect a broad portfolio that includes LTL service. And smaller shippers with fewer logistics personnel or resources, and less expertise in LTL pricing, want help, too. "Rather than working with 12 or 15 LTL carriers (nationwide), there are shippers BIRTH OF THE '3PLTL' With shipments and profits growing, third-party logistics providers becoming an increasing force in LTL market

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