Freight Management Services
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900 Dudley Avenue
Cherry Hill, NJ 08002
Phone: (856) 317-9600
team@tuckerco.com
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Logistics Management
TRANSPORTATION INTERMEDIARIES
How David lives with Goliath
By Jim Thomas, Executive Editor
 Transportation intermediaries feel the heat when it comes to competition
with large carriers and third-party logistics providers. Yet their small
size is one of the intermediaries' greatest advantages.
When it comes to transportation outsourcing, big is not the one size that
fits all shippers. Although the big revenue opportunities typically are
seized by the larger third-party logistics providers (3PLs), which regularly
ink multi-year, multimillion dollar contracts, smaller transportation intermediaries
continue to thrive. How so, when shippers seeking to pare down their vendor
bases typically look to the larger logistics companies? It appears that
these smaller providers match up well in scale and service with small and
mid-sized companies that make up a large part of the U.S. economy.
"The name of the game for big vendors is consolidation," says
William Tucker, president of Tucker Co., a transportation intermediary based
in Cherry Hill, NJ. "It is the only way they can continually grow their
business year after year. So big vendors will gobble up private fleets,
often from mid-sized companies. Because there is a lot of demand the large
providers can't fill, it abandons the mid-sized company in favor of its
larger customers. So cracks open up in service. The more they consolidate,
the more cracks open."
And the more the cracks open, the greater the opportunity for intermediaries to build business relationships with mid-sized shippers. Some intermediaries prefer this business because the large shippers are the most demanding. "It is a phenomenal feat to satisfy just one big shipper because [these shippers] require so many of your resources," says Tucker. Additionally, say a number of intermediaries, the real growth opportunities lie with smaller shippers, not the Procter & Gambles and Wal-Marts of the world. "Most brokers aren't going after the Fortune 1000 companies," says Ronald Williamson, president of RJW Logistics Inc. of Addison, Ill. "We generally look for customers with average annual sales in the range of $40 million to $50 million.
Williamson says it's not that intermediaries ignore larger prospects, but
that large shippers present intermediaries with a business challenge. "If
you compete against the large truckload or less-than-truckload carriers,
you may win a $400,000-a-year account," he says. "That will make
up a large percentage of your business, which makes it tough to walk away
from the account if things don't work out."
The Challenges
Still, the big providers have always challenged the smaller competitors
on any number of playing fields, including the political arena, say intermediaries.
The Transportation Intermediaries Association (TIA), the leading education
and policy organization for North American transportation intermediaries,
opposed provisions in the Ocean Shipping Reform Act that barred non-vessel
operating common carriers (NVOCCs) from entering into confidential contracts
with customers. The law allows ocean carriers and individual shippers to
participate in confidential contracts, but NVOCCs, which are intermediaries,
will have to follow published tariffs. "The big shippers, carriers,
and organized labor colluded to throw the NVOCCs to the wolves," charges
Tucker.
"We are living with ocean shipping reform, although we believe it discriminates
against small businesses and NVOCCs," adds Robert Voltmann, executive
director and chief executive officer of TIA. "The TIA hopes that a
broad interpretation of the law will allow NVOCCs to participate in confidential
contracts. We will challenge the law if it is not implemented favorably."
Recently implemented volume requirements by major railroads also add to
intermediaries' woes. The TIA has expressed concern over what Voltmann calls
the "continuing degeneration of rail service." He says, "The
Burlington Northern Santa Fe wants inter-modal marketing companies to guarantee
them $5 million in business annually before they can qualify for preferred
contracted rates. CSX has taken that a step further and stipulated that
the $5 million must be in new business. There is a recent pattern of the
railroads increasing their profitability by doing less."
What's in a Name
Another source of friction between the Davids and Goliaths is marketplace
perception and image. Larger transportation providers sometimes seek to
differentiate themselves from intermediaries, most of which are known as
brokers. In his recent book, "Transportation and Logistics Basics,"
R. Neil Southern writes that "Some larger companies [that] provide
a brokerage function do not like to term `broker.' They prefer to be called
freight forwarders or transportation or logistics companies."
Voltmann responds: "In this era of intermodal intermodal intergalactic
supply chain facilitators, there is a perception that brokers are a throwback
to another time. However, if you book freight for a carrier, then you are
either a broker or a freight forwarder under the law."
Regardless of perception, Southern says that intermediaries fill a void
in the transportation marketplace: "If truckload carriers had adequate
sales representation to find their own loads and shippers had adequate carriers
to haul their freight, there would be no need for transportation brokers."
Intermediaries' success clearly indicates that the need does exist.
"A lot of what we do is just fundamental economics played out,"
says Gregory Stachura, president of GSA International Ltd., an intermediary
based in Novi, Mich. "If we don't deliver our services competitively
with good, timely information, then we don't make it."
Stachura says that the marketplace has defined a clear role for intermediaries.
"We've seen the mega-players land the large accounts," he says.
"What will settle is the need for specialization; the small niche player
that can offer a holistic solution that goes beyond transportation to include
the entire supply chain."
The development of complex logistics information systems creates another
challengeand perhaps an opportunityfor intermediaries. Says Stachura, "With
technology, all of us want to push a button and have everything run on its
own. That can be done, but would it be cost efficient? There are tradeoffs
with technology, and intermediaries need to be able to put a pencil to them.
What will be a customer's return on the cost of capital? What is the payback
schedule? Can it be reduced?
Other intermediaries see less demand from their customers for information
systems. "[S]mall to mid-sized customers haven't demanded it, and we
aren't volunteering it," says Williamson. "Our customers want
reliable logistics services at competitive rates, so that's our focus."
If there is one need that all intermediaries agree on, it is the need to diversify. "It's the way to battle the competition," says Williamson. "We recently added air freight and expedition services, and we are doing more and more local cartage. The challenge is to find new rivers of cash. If one dries up, you'd better have another one running."
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