Since deregulation, 3PLs have become increasingly significant players in the trucking industry. By some estimates, the industry is over $150B in annual revenues and generates around $50B in gross margins. As much as 20% of for-hire freight is tendered through brokerages and 3PLs. A study done earlier this year by LaneAxis Virtual Freight Management stated that, of the 13 largest publicly traded trucking companies, 42% of their capacity is outsourced to other carriers.
Brokerages have a number of advantages. They are not responsible for managing assets or network density; they have limited liability; can pick and choose carriers at will; have very high returns of capital; and don’t have to deal with retaining or recruiting of drivers. The larger firms have strong engineering and quantitative teams that build offerings that enable shippers to operate more efficiently, with fewer disruptions.
The 3PLs have one glaring disadvantage over the asset-based carriers and this is in the world of trailer pools. Trailer pools are a group of trailers that an asset-based carrier drops at shipper docks, allowing the loading and unloading to happen without the driver present. This enables the shipper to enjoy flexibility in loading and unloading without tying up a driver or congesting a yard with impatient drivers. It also mitigates the detention spending that shippers pay out for tying up the same drivers. Fleets enjoy trailer pools because they can keep their drivers generating loaded miles, making the driver and fleet CFOs happy.
In an ELD environment, drop-and-hook freight will be much more valuable in the market. Carriers that have a large concentration of drop-and-hook freight will end up having better utilization records and will likely keep drivers longer. Any time that is spent tied up at docks will mitigate the amount of paid miles that a driver and truck can generate, so this freight will become less desirable for large commercial fleets, and will likely go for a premium.
Detention is likely to be enforced to a much greater degree in the future as carriers get smarter about enforcement and collections. In 2015, executives from Swift told FreightWaves they generated $600 per truck per year in detention collections. This number is in range of what other carriers reported to us. The cash hits the bottom line, but this enforcement and collection process also creates a level of accountability and hopefully becomes correct shipper behavior in the future.
3PLs that have managed shipper freight on a committed business have been partnering with asset-based carriers, using their trailer pools in contract lanes.
In the future we are likely to see trailer pools pop up in the spot freight market. Imagine if C.H. Robinson or Coyote were to add trailers to their irregular route freight, offering drivers in the OTR spot market trailers they can shuttle between shippers. Their freight network and density dwarfs most of the asset-based carriers, ensuring turns of the equipment and high-quality preloaded freight.
Maybe DAT will create a trailer pool load board or a digital broker will partner with a trailer leasing company, using a blockchain payment clearing and tracking solution to ensure tracking, liability, or payments. The “grey trailer pool” is certainly on the agenda of BiTA’s November 16 meeting in Atlanta. Maybe it’s no coincidence that 6 of the top 10 freight brokers will be present.
One of the things that the FreightWaves team has spent time thinking about is that the digital brokers have very little moats around their business because they don’t control capacity. Imagine a day where owner-operators went strictly power only and were using a shared pool of trailers to haul freight for a specific digital broker or a few.
In the future, truck capacity may look a lot like the intermodal market. Spot carriers will operate in power-only lanes, while the trailer assets will be pooled through some clearing and posting system.
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