Missed Opportunity?
Traffic World, November 30, 1998
by John D. Schulz

LTL carriers lose out to UPS, FedEx in guaranteed delivery service niche. When shippers absolutely, positively need guaranteed ground express service. Or they pick United Parcel Service.

That is true even if they already are customers of national and regional LTL carriers, which increasingly have the capability to match FedEx and UPS in that growing time-definite market, but are missing out on market share because they are being out-promoted by the two package express giants.

Those are the main points of a new regional LTL shipper survey done this summer by Pittsburgh-based SJ Consulting and obtained by Traffic World.  The survey was conducted to find the reason for lack of express guaranteed regional services for heavier LTL shipments, like those offered for parcels from FedEx, UPS and others.

Although Yellow Freight System bucked the trend last July 15 when it started its Exact Express service, which not only guarantees time of delivery but customer satisfaction, some LTL executives have been slow to offer similar services because they believe there is no market for guaranteed services for LTL shipments.

This new survey confirms that even LTL shippers want guaranteed delivery service, even at the regional level.  But because of inadequate marketing and complexity in design with express services offered by some regional LTL carriers, the respondents in the survey overwhelmingly found UPS and FedEx easier to use for their express LTL shipments.

Moreover, it shows how successful the two giant small-package companies have been in promoting their advantages in handling LTL shipments.  UPS has said its hundredweight LTL shipment service has been its fastest-growing offering in the last three years. Increasingly, FedEx is becoming a larger player in LTL and has even hinted to its pilots that it might become an all-ground carrier if its air operations hit a big-time labor snag.

"FedEx is focused on the express market", said Satish Jindel, the principal of SJ Consulting, which did the survey of 100 regional LTL shippers in the mid-Atlantic region. "And they make it so easy for shippers to use. You can go to the FedEx website and rate the shipment right away."

"The LTL carriers make it too complex. They ask you about 14 questions about size of the shipment, piece count and what-not. By the time you get done, you're exhausted.  The LTL pricing is also too complex and has too many tiers. You don't want to spend 15 minutes on the phone pricing a shipment," said Jindel.

Yellow Freight System President Bill Zollars agreed with the survey's major findings.  Under his direction, YFS is leading an effort to simplify LTL pricing. With Exact Express, Zollars said, one phone call will handle all the details.

The survey result "doesn't surprise me," Zollars said. "Look at the money UPS and FedEx spend to become household names.  We just started Exact Express in July. It's early. But everything so far that we've tracked has exceeded expectations," he said.

Zollars wants YFS to be thought of as "the FedEx of packages over 70 pounds," and is willing to concede the envelope business to it, UPS and others that specialize in the market.

But the survey results show that despite LTL carriers' wishes to expand their core business into niches, it is FedEx and UPS that increasingly are thought of by LTL shippers for time-critical shipments. When asked to identify the carrier most frequently used for time-critical LTL shipments, UPS was named most frequently - 25 percent.  Next came FedEx at 22 percent followed by Roberts Express at 14 percent. Not even one regional or national LTL carrier scored about 3 percent.

It is noteworthy that the respondents did not show preference for the express/expedited services such as Con-Way Now or Roadway's Time Critical, two premium-priced offerings designed to differentiate those carriers in the market.

Jindel's theory is that, because those services are designed to work as both express and expedited, they are not as easy to use as the express hundredweight services of UPS and FedEx. Con-Way and Roadway officials dispute that, saying one call to those carriers gets most time-critical shipments on their way with guarantees rarely having to be paid out due to service failures.

For time-critical shipments, 45 percent of respondents said they most frequently used 10:30 a.m. next day service.  It showed UPS and FedEx setting the service standards in the express LTL market.

On the brighter side, some 66 percent of respondents were aware of time-definite services offered by regional LTL carriers. Those most frequently mentioned in the mid-Atlantic market were Pitt Ohio Express (43 percent), Con-Way (19 percent), Preston (19 percent), USF Red Star (15 percent) and Penn Motor Express (15 percent).

While some shippers said they were aware of time-definite services from regional LTL carriers, they did not identify those carriers as their preferred carrier for express LTL shipments. 

LTL carriers may be missing the boat here. When asked if they would support next-day, guaranteed services at a premium rate from their regional LTL carriers, 54 percent of the shippers said yes, 39 percent said no and 7 percent said they didn't know.

When asked what percent of their shipments were time-critical and requiring guaranteed service, the mean response was 14 percent.  Some 45 percent said less than 5 percent of shipments were time-critical, 32 percent said 26 percent or more, 12 percent said 10 percent, and 8 percent said 5 to 10 percent of their shipments were time-critical.  The disparity between the two open-ended categories suggests very different usage patterns of guaranteed service between market segments, said Jindel. Average weight of time-critical shipments was 405 pounds.  Interestingly, however, half of the sample said their average weight was in excess of 501 pounds - again, indicating a marketing opportunity for LTL carriers.

Zollars of Yellow Freight said his company's commitment to the infrastructure behind Exact Express also has helped YFS increase its penetration in the one- and two-day markets.  YFS plans a "much more aggressive offering' in those lanes in the next year, Zollars disclosed.

"We run Exact Express right through our normal LTL operation," Zollars explained.  "That's because of the $100 million investment in technology in our normal LTL network.  We absolutely know where everything is in real time in our system.  We can pretty much guarantee just about everything now because of that."

Considering the premium associated with express service, the survey gave LTL carriers some hope of increasing margins if they can capture some of this market.  The survey showed the mean (midpoint) number of shipments requiring next-day guaranteed service was 10 per week. This compared with weekly volume of their regular LTL shipments - 34 percent said between 10 and 25 regular shipments per week, 27 percent shipped more than 51 per week, 20 percent less than 10 per week and 18 percent shipped between 25 and 50 shipments per week. 

Jindel said his survey has a plus-or-minus of 9.8 percent at 95 percent confidence level.