As of July 31, 2023, the third-largest U.S. LTL carrier, Yellow, shuttered its operations and filed for bankruptcy. The company reportedly faced relentless cost increases in nearly every category except fuel. At Old Dominion Freight Line (ODFL)–the nation’s 2nd-largest and most profitable LTL carrier– first-quarter tonnage per day dropped nearly 12% year over year in the first quarter. ODFL executives acknowledged on an earnings call that the freight bounce-back the carrier expected in the current quarter was illusionary.
With the collapse of Yellow, many in the industry think this would be an excellent opportunity for smaller carriers to acquire new business. However, many of these smaller carriers already operate at 90% capacity. When you add 100% of Yellow’s freight to the marketplace, existing carriers can’t handle the additional work because it is too much freight to carry without buying new trucks and hiring new drivers. Larger carriers may have more spare capacity to absorb this freight, however.
Shippers who relied on low-cost LTL carriers are in for a sticker shock. When they learned that Yellow was going under, many of these shippers began reaching out to other carriers to secure pricing and capacity. Many shippers are looking at a mix of using large and small carriers. A WSJ article reports that “experts say various truckers in Yellow’s markets have seen from 2,000 to 3,000 added shipments each day in recent weeks, a welcome infusion in a US freight market that has been turning downward this year.”
So, how can shippers vet freight carriers? Shippers can do market research to identify potential carriers that operate in the regions or lanes relevant to your business. Look for carriers that align with your service offerings and target industries. The other steps for vetting carriers include:
- Carrier Screening and Due Diligence: Conduct a screening process to gather basic information about potential carriers. The screening process includes verifying the carrier’s legal status, insurance coverage, safety records, and operating authority. Check to see if the carrier has any past violations or accidents. Due diligence helps ensure that the carriers meet the necessary legal and operational requirements.
- Safety and Compliance Checks: Ensuring the carrier complies with all safety regulations is crucial. You must verify that the carrier is registered with the Department of Transportation (DOT) and has a valid Motor Carrier Number (MCN). Shippers also need to check their Safety and Fitness Electronic Records (SAFER) system data to assess their safety performance.
- Insurance Verification: Confirm that the carrier has appropriate insurance coverage, including liability and cargo insurance, to protect against potential losses during transit. Review the carrier’s insurance policies to ensure they provide coverage for potential disruptions caused by the carrier’s failure or other logistics-related issues.
- References and Reputation: Ask for references from the carrier’s previous clients to get insights into their reputation, reliability, and service quality. Make sure you contact the references and gather responses.
- Financial Stability: It’s essential to ensure that the carrier is financially stable to avoid any disruptions in service due to financial issues. You may request financial documents or credit checks to evaluate the carrier’s financial standing, which should be regularly evaluated. Assessing the carrier’s financial stability includes credit checks and monitoring their financial performance. Early signs of financial trouble can help the shipper prepare for potential disruptions.
- Capacity and Equipment: Assess whether the carrier has the necessary equipment and capacity to handle the types of freight you need. Communicate expected capacity requirements to carriers, allowing them to plan and allocate resources accordingly.
- Performance History: Review the carrier’s performance history, including on-time delivery rates, claim ratios, and customer satisfaction levels. Continuous monitoring and performance evaluation are crucial aspects of maintaining a healthy carrier relationship. Use performance metrics and customer feedback to assess carrier performance and make informed decisions regarding their ongoing partnerships. Eliminate underperforming carriers from your network.
- Communication and Technology: Efficient communication and technology are essential in modern logistics. Evaluate the carrier’s ability to use electronic data interchange (EDI), APIs, and other technology for seamless communication and tracking. Establish open and transparent communication with carriers to keep informed about any challenges they may face, giving you early warning if there are potential risks.
- Environmental Impact: If the shipper values the environment, prioritize carriers with eco-friendly practices to align with your sustainability goals. Ask about the carrier’s environmental initiatives and certifications.
- Contract and Legal Agreement: Once a carrier passes the vetting process, you will need to formalize the partnership through a contract that outlines the terms, conditions, and expectations of the collaboration. These contracts cover pricing, service levels, liability, and other essential aspects.
Work with a 3PL
Working with a 3PL with a vast network of small and large carriers can help shippers acquire capacity at the right price. A 3PL (Third-Party Logistics) company typically vets its freight carriers through a rigorous process to ensure they meet certain standards and qualifications. The goal is to select reliable and reputable carriers that can efficiently transport goods on behalf of the 3PL and its clients.
3PLs focus on building strong relationships with carriers. They engage in conversations, negotiate terms, and address concerns to establish mutual trust and understanding. Positive relationships can lead to better service, more competitive pricing, and increased availability of capacity. A mix of carriers with various capabilities helps the 3PL provide more comprehensive solutions to their customers.
Relying on a single carrier can be risky, which is why shippers should work with a 3PL with multiple shipping partners. This diversification of carriers spreads the risk and provides alternative options if one partner goes out of business.
By Lisa Flohr, Director of Operations, Nexterus
Lisa Flohr is the Director of Operations for Nexterus, a leading 3PL for small to mid-size shippers. Nexterus provides TL/LTL freight management, supply chain network design and optimization, warehousing, International shipping, Parcel shipping, and a TMS. www.nexterus.com
3PLs have expertise in managing logistics and supply chain operations, which can help LTL carriers optimize their operations and reduce costs. As 3PLs often have an extensive network of carriers, suppliers, and customers, this can help carriers expand their reach and gain access to new markets.
Plus, many 3PLs have expertise in managing risk and compliance, which can help carriers reduce their exposure to regulatory and legal risks. 3PLs can manage customs and trade compliance, insurance coverage, and liability issues.
3PLs provide carriers with greater flexibility and scalability, as they can adjust their services based on the carrier’s changing needs, including additional capacity during peak periods.
Whether a shipper transports shipments via parcel or LTL carriers, the expertise of a 3PL provider can be used to help the shipper decide which type of carrier to use, resulting in lower costs and the best service for the customer.