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Large 3PLs break into frothy Memphis headhaul market

( Photo: FreightWaves Staff Photographer )

Long considered an asset stronghold, Memphis welcomes big brokerages

Small and midsize brokers still find Memphis market difficult

If you’re a broker who wants to play in the Memphis freight market, you’d better come with capacity at scale and a willingness to feel some pain in order to build long-term, meaningful relationships. That’s what we’ve been hearing from brokers at Trident, Avenger, Redwood, and Echo (NASDAQ: ECHO). There’s a huge volume of freight outbound from Memphis, but until recently large asset-based carriers like JB Hunt (NASDAQ: JBHT), Schneider (NYSE: SNDR), Werner (NASDAQ: WERN), and Knight-Swift Transportation (NYSE: KNX) have had the market locked up. Only in the past few years have major 3PLs made headway with high-volume shippers, and small brokerages still don’t feel welcome.

Memphis, Tennessee is one of the strongest headhaul markets in the country, consistently producing more outbound freight than it takes in. Even though it’s not a major market in terms of absolute volume—Memphis tenders about a third of the loads that Atlanta does—the imbalance between inbound and outbound freight is roughly equivalent to Los Angeles. But why?

SONAR’s headhaul index measures the balance between outbound and inbound freight for any given market: it’s calculated each day by simply subtracting inbound volume from outbound volume. Memphis (HAUL.MEM) scored a 63.08 last Friday; for reference, Los Angeles (HAUL.LAX) was at 63.51 and Chicago (HAUL.CHI) posted a 45.43. The higher the score, the more outbound freight a market has compared to inbound. 

 Memphis is one of the most lopsided freight markets in the country. ( Map: FreightWaves SONAR )
Memphis is one of the most lopsided freight markets in the country. ( Map: FreightWaves SONAR )

The lopsided freight flows in and out of Memphis mean that shippers have to pay more to secure outbound capacity. You can see how Memphis’ high headhaul score puts capacity at a premium by comparing it to another market like New Orleans (HAUL.MSY), which has a headhaul score of 12. According to DAT’s RateView tool, over the past seven days dry vans from Memphis to Atlanta brought in $2.29/mile net of fuel, while the rate from New Orleans to Atlanta averaged only $1.71/mile net of fuel. Those lanes have maintained a fairly stable 50-60 ct/mile spread. 

What makes Memphis such an important source of trucking freight? There are two major factors: transportation infrastructure and large shippers. Five of North America’s Class 1 railroads meet in Memphis: CSX (NASDAQ: CSX), Norfolk Southern (NYSE: NSC), BNSF (NYSE: BRK.A), Union Pacific (NYSE: UNP), and Canadian National (NYSE: CNI). That junction has made Memphis the third largest rail hub in the country after Chicago and St. Louis. There are also a number of very large shippers, from steel manufacturers like Nucor (NYSE: NUE) and Big River Steel to International Paper (NYSE: IP). 

FedEx’s (NYSE: FDX) headquarters in Memphis also makes it a destination for e-commerce shippers who move high-value product and who need large quality carriers they can trust. Nike (NYSE: NKE) has 2.5M square feet of distribution center space in the market; Williams-Sonoma (NYSE: WSM) has more than 1M square feet in nearby Olive Branch. Those needs have tended to put a damper on small and midsize brokerages looking for an entry point into the market.

“There’s so much freight coming out, but from a brokerage standpoint it’s very difficult,” admitted Carter Garret, VP at Trident Transport. “We don’t have a lot of leverage… at the end of the day Memphis is an asset stronghold due in part to the rail spur.” 

“You have a lot of trucking companies in the area, and they have good relationships with those shippers and dominate the freight going back in. We’ve never been able to establish a strong presence there,” said Rush Feldhacker, VP of Sales at Trident. “I’ve never seen anybody have a great brokerage set up of any size there. It’s one of those areas where you don’t try to compete that much because you’re at a disadvantage; you’re just not able to compete on price. Spot rates on outbound Memphis are inflated—it’s difficult to get a truck for a reasonable price.”

An executive at another Chattanooga-based brokerage agreed, and also said that working with the railroads was difficult for asset-light providers.

“The other challenge from a brokerage standpoint is the rail,” said Jason Roberts, Director of Business Development at Avenger Logistics. “In my experience, we have a big challenge trying to handle business coming in and out of the rail yards, because the rail has very specific requirements as to who can and cannot come into the yard. They want our MC number on the truck and there’s extra registration involved for each yard. I had to get a truck driver to put a piece of cardboard with our MC number on the side of his truck just to get into the rail yard.”

Memphis has been a well-priced headhaul market for a long time, Roberts said, and carriers strategically allocated assets to the area. 

“Price isn’t what keeps us out,” Roberts said. “The previously established relationships with the current customer base that’s there is what keeps us from really being able to put a dent in it.”

“The challenge for the brokerage is how do you establish that same relationship and fill that value proposition to those customers who are already doing business with those carriers,” Roberts said. “It’s about pushing out carriers who aren’t based in Memphis into that area more often—and we have to rely on the business being there in order to sell the same piece to our trucks going into that market.”

Two larger Chicago-based brokerages said they have had more success convincing big shippers to give them freight.

“My view of Memphis is that it’s an extremely strong secondary market,” said Christopher Thornycroft, SVP of Operations at Redwood Logistics. “It’s not by volume the same as Chicago, Atlanta, or Los Angeles—it’s different in that way, but it’s so sustainable because it’s the largest DC network in the country. Therefore you have carriers who have a heavy stream of regular freight, plus a just-in-time market that establishes itself.”

Redwood has more than 200 active carriers out of Memphis proper, Thornycroft said, “and forty of those are designated as ‘strong relationships.’”

“It’s a market that gets impacted by produce, by retail, even by back-to-school,” Thornycroft added. “If there is a market out there, it touches Memphis. That does make it more difficult for some brokers to get involved, because you’ve got to have some skin in the game. A pricing algorithm is going to expose you to loss and you have to be able to hang on and grit your teeth, especially in the beginning years.”

“It’s a game of figuring out what don’t [asset-based carriers] want, and if that’s the case, it has its difficulties as well. But where there’s pain, there’s often opportunity,” Thornycroft said.

Adam Markman, Division VP at Echo Global Logistics, said that since about 2014 supply chain managers at large shippers have begun changing how they think about their transportation needs. Flexibility and creativity are now considered paramount, which has been a boon to 3PLs with access to lots of capacity.

“Supply chain managers say ‘this is how it was last year, not sure how it’s gonna be this year,’” Markman said. “There can be multiple swings based on pricing and seasonality and some challenges based on shippers and relationships, but as the market has evolved over the last couple years, we’ve done well.”

“There are larger corporations and shippers in Memphis who control a lot of the capacity, so you have to make adjustments based on that,” Markman said, noting that 3PLs had a role to play on weekends and fulfilling otherwise difficult load/unload times. 

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.