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Mar.7, 2016

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SURFACE & DOMESTIC TRANSPORTATION 96 THE JOURNAL OF COMMERCE www.joc.com MARCH 7.2016 who will ask a 3PL to do it" for them, said Satish Jindel, president of SJ Consulting Group. "If LTL carriers aren't careful, they will find the 3PLs between themselves and their customers." That's a transformation for truck- ing operators that have been in the LTL business for years. Ask an LTL trucking executive about the biggest change they've seen over the past decade, and the increas- ingly important role 3PLs play in their business will likely be the answer. The relationship between LTL and 3PL is some- times strained, especially when the carrier believes a third-party player is trying to play them on price, acting as a rate consolidator and not giving any value back to the carrier. LTL executives often speak of "firing 3PLs" that simply "resell rates" and don't offer them value for the assets and oppor - tunity they provide. But LTL carriers also rely on 3PLs for freight that can increase lane density and for access to smaller ship- pers they typically can't reach. This isn't just a boxing match between LTLs and 3PLs, however. Broader supply chain change is rerouting freight, forcing LTL carriers to adapt and adopt new strate- gies if they don't want to be commoditized. And just as XPO Logistics has invested in LTL assets, some LTL operators — notably ArcBest, parent of ABF Freight System — have invested in non-asset or asset-light businesses to extend their supply chain reach. In ArcBest's case, those investments include the acquisition of Panther Premium Logistics, Bear Transportation and Smart Line Transportation Group and the expan- sion of ABF Logistics. "We're seeing this happen everywhere," Tommy Barnes, president of Project44, a technology company that uses application program interfaces to connect 3PLs, ship- pers and LTL carriers, enabling faster flow of data among multiple transportation man- agement systems. "Today's freight market is agnostic," Barnes said during a JOC webcast in Janu- ary. "There's a blend of all types of activity," across modes as well as the narrowing asset and non-asset divide. "It comes down to service, and what tools people bring to the party." When it comes to service, LTL carriers "need to identify which shippers they can best serve," Jindel said. "They need to ask if the margin they get from the 3PL is as as good as it would be if they handled that shipper's business directly. And whatever margin they are giving to the 3PL, how are they offsetting that in costs? I know at least two or three LTL carriers that are keeping salespeople for large national accounts, but the field salespeople they used to send out to target smaller accounts are being elimi- nated," Jindel said. "They're using 3PLs for that business." The trend is toward greater coopera- tion and combination between 3PLs, LTL carriers and other transportation opera- tors. That's a difficult dance as each partner tries to find the right footing, but technology may help. SHIFT Freight is an LTL operator that relies almost entirely on technology to move freight through its unique, virtual LTL net- work. If any company deserves the label "3PLTL," it's Southern California-based SHIFT. The carrier uses 3PLs as a sales force, deriving 75 percent of its revenue from them and 25 percent from direct sales to shippers. Although it's building a nationwide net- work, SHIFT operates only five of its own trucks. It relies on established LTL carrier partners to haul freight. Those carriers, in return, use freight sourced from SHIFT to fill trailers more fully and build density in specific lanes. "3PLs are becoming a lot more collab- orative, at least with us," said Kurt Watkins, SHIFT's vice president of sales and marketing. "We get together and ask how we can grow business together. The companies that partner up with the 3PLs, they're more competitive." That kind of beyond-the-pallet thinking solves problems, and that's what shippers are looking for in a partner, whether a 3PL or LTL company. JOC Contact William B. Cassidy at bill.cassidy@ihs.com and follow him on Twitter: @wbcassidy _joc. By Bill Mongelluzzo SOCAL'S DRAIN ON DRAYAGE Hub Group's exit underscores the impact a Teamsters-led push to reclassify owner-operators could have on capacity HUB GROUP'S DECISION to end its employee- based drayage operation in Southern California is the latest event in a tug of war between the independent contractor model of trucking and the employee model. Drayage companies nationwide, and especially in California, face increasing pressure from state and federal regulators to reclassify their owner-operator drivers as employees. So-called misclassification law- suits, some filed by drivers on their own, some supported by the Teamsters union, have resulted in a handful of companies shifting to the employee model. On the other side of this battle are the hundreds of drayage companies that strongly support the independent contractor model in which the drivers own the vehicles, or are involved in lease-purchase arrange- ments. This model has dominated harbor drayage and short-haul trucking since the industry was deregulated in 1980. As these developments play out in the coming years, the message for cargo inter- ests is that truck capacity and pricing of drayage services will be affected. Capacity shortages could develop in certain markets if drivers migrate to higher-paying sectors of trucking, truck company owner and indus- try attorney Greg Stefflre said. No matter where the industry heads, the result will be an increase in drayage pricing. "Everything begins and ends with what

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