Supply chain dislocation and tight truck capacity have intensified shippers’ demand for power-only and drop-trailer solutions, accelerating a trend that has been years in the making.
When Knight-Swift (NYSE: KNX) reported its third-quarter earnings in October, transportation analysts hailed the giant carrier for achieving operating ratio parity between its Knight and Swift branded fleets. But buried in the presentation was another number that spoke to a different transformation, profound in its own way: 30%. That’s the percentage of Knight-Swift Logistics truckload moves that were power only, meaning that brokers hired a tractor without a trailer of its own to move one of Knight-Swift’s trailers.
Knight-Swift’s Logistics division is a $400 million revenue per year freight brokerage, so that’s not by any means an insignificant amount of volume. What’s even more impressive is that the number of power-only moves nearly doubled in a year, growing by 87% compared to the third quarter of 2019.
Executives at Knight-Swift said that while building the power-only business has been a priority, the momentum is due in large part to customer demand.
“We’re uniquely positioned because of our size,” said Lars Ward, director of sales at Swift Logistics. “We were seeing this growth before the market tightened. Customers loved it and carriers loved it, and with current market conditions, almost every shipper conversation we have touches on ‘what can you do for me in the drop space?’ The market is definitely causing some acceleration.”
But why are shippers interested in power-only and drop-trailer solutions?
Briefly put, power-only and drop-trailer solutions offer shippers efficiency and flexibility while helping carriers be more productive. In a power-only move, a truck arrives at a shipper’s facility, finds a preloaded trailer, picks it up and drives away without waiting for a dock appointment or sitting through a tedious live loading. In a typical live load, shippers have to wait for three events to occur before loading a trailer: The freight has to be ready at the shipper location, the labor has to be available to load the freight into a trailer and the truck has to be at the dock. By preloading the trailer, a shipper can handle freight on its own schedule and avoid the congestion and delays that can come with waiting for a truck — and even use trailers in its yard as temporary storage capacity, increasing its facility’s throughput.
Shippers with high volumes and high freight velocity — a sustained, regular cadence of loads with cut times close together — benefit the most from drop solutions. Power only and drop freight have penetrated large retailers more than most other verticals, while shippers that produce industrial goods like metals and raw materials are less well suited for a drop solution.
The benefits are clear for carriers too. With less time wasted waiting to be loaded and unloaded, drivers can more fully utilize their hours of service, run more revenue-generating miles and improve their operating ratios. Whether it’s part of a power-only solution offered by a brokerage or whether the carrier is supplying its own equipment, so-called drop-and-hook freight is obviously more efficient than live loads and unloads.
The problem is that drop-and-hook freight is difficult to manage because separating the trailer from the tractor makes tracking, matching and routing problems more complex. How many trailers does a shipper need at a certain facility or in a certain lane? How does the trailer provider ensure that the trailers are being efficiently utilized and turned multiple times each week? How easy is it to find another carrier to move the trailer in the event of a service failure? Those questions are best addressed by a third-party logistics provider like a freight brokerage and the answers depend on the characteristics of the brokerage’s capacity network.
Knight-Swift, Arrive Logistics and Uber Freight have all built drop-freight solutions for their customers, but each takes a different approach and uses a distinct business model.
Knight-Swift uses scale to its advantage
Knight-Swift’s Logistics division has access to nearly 60,000 trailers across Knight-Swift’s entire fleet, not to mention more than 18,000 tractors. And that scale matters.
“We get a lot of phone calls for projects in busy times,” said Shannon Breen, senior vice president of logistics and intermodal. “You can call the trailer rental companies, but for peak season, there’s no one to call right now. We have 58,000 trailers under management and we’ve become a phone call that can get you 20 trailers in four days, depending on the circumstances. How many people can you really call to get 10, 20 or 40 trailers right now?”
When Knight-Swift Logistics implements a power-only solution, its brokers determine which mix of company tractors and third-party carriers are optimal for the lane. Breen said that Logistics had to build a robust internal technology platform in order to seamlessly pass trailers back and forth between its partner carriers and Knight-Swift’s fleet drivers, tracking loads from end to end and making sure that the trailer stays in the lane.
“We can flex up with America’s largest over-the-road fleet because we’ve got collectively 18,000 trucks in our network through our sister brands,” Breen said. “This is where our technology integrations have really helped us to have flexibility — it’s the ability for America’s largest fleet to come haul the trailers, in addition to all the partner carriers we have.”
Because Knight-Swift has the technological sophistication to easily mix brokered capacity and its own drivers on the same power-only lane, certain problems become easier to overcome. Optimizing Knight-Swift’s network becomes easier because tractors can be added to or removed from a lane depending on capacity needs elsewhere. Finding the right partner carrier is easier too because the carriers don’t have to supply any trailers and have the freedom to move as many loads on the lane as they want.
“It’s not a small lift to go down this hybrid solution path and have the appropriate visibility and ability to hand loads back and forth,” said Don Everhart, vice president of technology and analytics at Swift Logistics. “Making sure we have cross-visibility into moving that asset on one side or the other without a lot of manual processes, that’s where you see us winning in the space. Even the internal coordination that has to happen to see how many terminals we have in an area, how to match drivers to trailers locally and working with our trailer teams — the flexibility to be able to move that information around seamlessly is critical to our success.”
Arrive’s operational focus enables it to execute high-volume reefer drop-trailer projects
Arrive Logistics does not own assets, but Executive Vice President of Carrier Development Justin Frees explained that Arrive’s carrier strategy allows it to manage drop solutions with dedicated capacity. Frees said that Arrive has always focused on fostering deep relationships with small to midsize carriers with between 20 and a few hundred tractors. Those carriers are large enough to own excess trailers, which they stage at Arrive’s customers’ facilities for preloading.
“We put our flag in the ground and said that our core partner is the small to midsize carrier,” Frees said. “Our best approach is to identify the niche lanes that perfectly complement the carrier’s network and then work with our best shippers and that core carrier to navigate drop-trailer solutions together. It really comes down to relationships. If you think about it, a single transaction is very straightforward for the most part. When you get into drop-trailer pools, it becomes a lot riskier for everyone. Everyone has a lot more skin in the game, more commitment and more assets involved. Our partners really have to trust that we know what we’re doing and that these projects are going to be exactly what we said they’re going to be.”
Today, about 20% of Arrive’s total volume is drop-and-hook freight. Internal sources at Arrive revealed that the 6-year-old freight brokerage recently hit a $1 billion revenue run rate, so 20% drop and hook implies a substantial operation.
Frees said that Arrive’s drop-and-hook solutions begin with deep carrier relationships. Arrive’s carrier operations teams begin by understanding how the carrier runs its trucks, where its primary customers are and in which lanes it needs additional density to get back to those customers efficiently. Then Arrive runs a data science project to see where the carrier’s needs overlap with Arrive’s customers’ freight. Then human expertise reenters the picture, Frees said, as Arrive’s team carefully considers the details of the project and games out plans for every possible contingency. Once the operation begins, Arrive’s team closely monitors the project to ensure that everything runs smoothly.
“Most things that go wrong unexpectedly represent a failure of imagination,” Frees said. “Great operations people imagine everything that can go wrong and put things in place to deal with them. If you’re caught off guard, it’s too late and there’s too much frustration.”
Arrive’s strength in operations has allowed it to achieve one of the holy grails of drop solutions: executing a refrigerated drop-and-hook project for a high-volume produce shipper. Drop-and-hook solutions unlock the biggest efficiency gains for shippers that have freight that is time-consuming to load and unload and that have appointment schedules that are relatively unattractive to carriers. A lot of refrigerated freight certainly fits the bill. Produce, for example, is fragile and needs careful handling, making loading and unloading longer. And grocery facilities are known for nighttime appointments that can disrupt carriers’ normal schedules.
But the difficulties in moving refrigerated food with a drop solution are obvious. Someone has to make sure the trailer’s reefer unit is fueled and running properly, the temperature of the trailer has to be monitored and the freight cannot sit indefinitely. For frozen freight, a reefer trailer may need to be precooled for 48 hours. And the reefer trailer itself is far more expensive than a dry van trailer, making inefficient dwell times more costly.
“Reefer adds an extra level of complexity, risk and money,” Frees said. “It’s a lot harder, but we’ve been very proud to pull it off. We set up a high-volume drop-trailer produce run and the customer was shocked. They didn’t think it was possible to pull off a solution like that — they thought it was too complicated. You have to know your carrier’s driver schedule, how to load the trailer, how to make sure they’re fueled up and keep them running. It has to run like clockwork.”
Uber Freight’s Powerloop cuts dwell times by 30%
Uber Freight takes a third approach to power-only and drop-trailer solutions. Although Uber Freight built a desktop fleet management portal for dispatchers last year, the digital freight brokerage launched with a mobile app and has historically seen the strongest adoption among owner-operators. Owner-operators typically do not have more than one trailer, so when Uber Freight introduced Powerloop in Texas in the fall of 2018, it knew that it had to figure out a way to source trailers. It did that by leasing the trailers and building what’s known in the transportation industry as a gray pool, or a fleet of unmarked trailers that can be hauled back and forth through a shipper’s network by various owner-operators and small carriers.
“We see Powerloop as a key building block for our offering overall, for both the shippers and the carriers,” said Carl-Christoph Reckers, a general manager at Uber Freight who oversees Powerloop and Uber Freight’s reefer and flatbed operation. “We see Powerloop as a way to unlock drop opportunities for small carriers and make Uber Freight a more attractive partner and a more desirable network to part of. It’s about productivity and flexibility with regard to appointments and shipper needs.”
The productivity gains generated by Powerloop are noteworthy. An internal Uber Freight study found that Powerloop reduced dwell times by 30%.
Uber Freight doesn’t disclose how large Powerloop is, but the brokerage as a whole is on an $844 million annual revenue run rate, based on Uber’s second-quarter results. Growth is expected to accelerate following Greenbrier’s $500 million investment in Uber Freight in October. Powerloop is concentrated in Texas and California, in particular the lanes connecting the “Texas triangle” of Houston, Dallas and San Antonio, and counts AB InBev and LG among its enterprise customers.
“I think one of the things that separates us from a lot of other brokers is that we do have Powerloop,” said Glen Stewart, head of Powerloop operations. “We use data and old-school relationships to understand customers’ shipping patterns and how they’re running their business overall, then we go in and have those conversations, work through the kinks and show them how we could save them money. It’s about understanding how drop trailers can free up dock spaces for them, free up a lot of staffing for them and understanding what all of the customer needs are.”
The unpredictable volatility in consumer demand, employee sicknesses and constrained trucking capacity caused by COVID-19 have all highlighted the advantages of working with drop trailers.
“Drop solutions enable additional flexibility,” Reckers said, “and that’s why the time is now. What we’ve seen across the Uber Freight network is that facilities get backed up when demand spikes one month and then contracts the next. And drop offers more time in the day, so to speak, for facilities to load trailers on time. Appointment flexibility is actually a big deal.”
Even with a deep logistics background — years at J.B. Hunt and HUB Group prior to Uber Freight — Stewart said that managing the physical assets of a drop-trailer pool was “not easy; it’s a hard thing to do.”
Integrating telematics data from the trailers with the visibility solution built into the Uber Freight driver app made it easier.
“The greatest thing about Uber Freight and Powerloop working together is the ability to tap into the technology,” Stewart said. “We have telematics on the trailers and are able to give the shippers up-to-date information where their shipments are at all times.”
How does Uber Freight know that a Powerloop project is working successfully?
“Customer satisfaction is the number one thing,” Stewart said. “And making sure that our carriers are always on the road and making it back home in time for supper.”