There has never been more attention paid to freight transportation than what we are experiencing now. And like the Wall Street Bets crowd on Reddit, our industry loves talking about the direction of the market. While FreightWaves and other industry publications have always talked about freight rates, mainstream media is getting into the game. This is new. Except for those in the industry who live with the daily ups and downs of freight pricing, most people were not aware of the volatility of freight rates.
In fact, when I first started FreightWaves, I had a conversation with a well-respected industry journalist at a major mainstream publication about the volatility of trucking rates. He suggested that trucking rates were just not that volatile. While I have a great deal of respect for his experience and knowledge of the global supply chain and logistics industry, I was floored that the volatility of trucking rates was a foreign concept.
I got a taste for the volatility of trucking rates early in my career. It was 2001 and U.S. Xpress had just started an airfreight division and provided airport-to-airport linehaul services to airfreight forwarders. I worked at the DFW airport as the sales representative. In addition to selling air cargo on a per-pound basis, we had something called “exclusive use” or EUVs. While I had been around trucking my entire life, the term was new to me. It basically meant a full truckload.
At the time I was working at DFW, U.S. Xpress had no sales presence in the North Texas market and always had trucks available. In those days, the view was Texas was a backhaul market and not really worth having full-time representation. So when I called for a truck, they always said yes. It helped that our customers were always willing to pay a premium.
Over time I discovered that the company could make a lot more money selling EUVs than an airport-to-airport LTL. We were selling trucks for $1-$2 per mile more than other customers were paying. I came up with the idea to expand this across the nation and Xpress Direct was born.
The Xpress Direct division offered shippers on-demand capacity in 60 markets within six hours. We didn’t guarantee a rate, but we would guarantee capacity. We handled surge, expedited and special projects for hundreds of shippers and just as many brokers. We were the “911” service for the industry that provided trucks when everyone else said no.
In two years, the division grew to $144 million in revenue, with $68 million in the margin above the market rate. In other words, it was immensely profitable and as fast-growing as any transportation division in trucking history. I left in 2005 and the division was shuttered during the financial crisis when rates fell out of the bottom of the market.
But through the Xpress Direct lens, I learned how volatile trucking rates were and how opaque the freight market is. We learned that shippers would pay whatever it took to move their freight and markets had very predictable cycles. You might not know which shipper would call, but if you started to see a market heat up, chances were that you were about to get pummeled with load requests. We developed rudimentary models, forecasting tools, and started to identify seasonal patterns in the market that enabled us to move trucks in advance of demand.
Our entire business model was built for last-minute capacity, and rates were always quoted at a premium. We told customers that we didn’t participate in their normal freight, to call us only when they had exhausted all other options. Often, we found customers that were not willing to take a penny-per-mile increase on an RFP but were willing to pay $2-$3 per mile more to get their loads moving. The reason was simple – they had no choice. In their routing guide negotiations, they had beaten up their carriers so much for price concessions that they lacked the flexibility to absorb these unpredictable load requests.
There was never a shortage of opportunities in the market. Most days we couldn’t keep up with the phones. We also had a lot of pushback from the rest of the truckload operations. We would take every truck in the market and then some. But we had a rule internally that we enforced strictly.
We never said no.
After all, there is never a bad load, just a bad rate.
If we reached the point that we didn’t physically have a truck or driver, we would quote an insane rate hoping the shipper would turn it down. Sometimes, they still said yes and when they did we cleaned up. After all, we were mercenaries.
And who was I to judge whether a rate was fair anyway? Shippers had many different reasons for calling us. Sometimes it was an emergency, other times it was a surge, sometimes it was because a contract carrier had missed the load and it had to go, other times it was because someone screwed up. Regardless of the reason, when they got to us something was wrong, but we never judged. Xpress Direct was the 911 capacity hotline.
And even the most disciplined and preplanned shippers always ran into disruptions. I recall a major bleach brand telling me over dinner that my service was “interesting,” but not a fit. They told me they had one of the best-running logistics departments in the world and never had issues. Two weeks later the company’s vice president of the supply chain called and requested 100 loads that had to be moved immediately because of a factory issue. It was the end of the quarter and they didn’t have alternatives. Naturally, we charged them $2 per mile more than a contract rate on the lane.
We had other opportunities, such as the traffic manager who called on Thanksgiving Day and had just been alerted about a marketing special the store was running. He had to get 85 truckloads moved from his Savannah, Georgia, distribution center into stores all over the Southeast before midnight so the merchandise was available for the Black Friday promotion that the marketing department forgot to tell them about.
The most extreme example was a forwarder out of Chicago that needed to move 110 truckloads across Chicago on New Year’s Eve to another facility 30 miles away. We charged $10,000 per truckload for that. We billed more than $1 million for the work, with the vast majority being margin.
We had water bottlers that would order hundreds of truckloads that needed to be covered. These were loads that had been left by their contract carriers, and they needed to move as soon as possible.
Folks who had been in trucking for many years found the whole idea behind an on-demand offering challenged everything they knew about trucking. How could a shipper that had always been viewed as “super cheap” pay us two to three times what they paid for normal services?
I knew something they didn’t, having learned it from the airfreight forwarders. There is always someone who has done such an efficient job of managing the routing guide that they simply have too much freight or something unexpected happens. And when it does, that’s when those same shippers are willing to pay. After all, they have done such an efficient job of trimming costs from their budget that they can pay a huge premium on a single load and it does not impact them.