In its second-quarter earnings call Tuesday evening, U.S. Xpress (NYSE: USX) management detailed a new strategy that generated more than 500 basis points of operating ratio improvement in its truckload business: a digitally recruited, dispatched and managed asset-based fleet that could transform over-the-road trucking.
That fleet is called Variant, and it comes complete with a unique look: brand-new gray Freightliner Cascadias tricked out with digital dashboards and driven by experienced drivers looking to run hard.
Load planning and scheduling are performed by a new suite of machine learning and artificially intelligent algorithms called the Variant Optimizer, which reduces operating costs and allows the fleet to be managed by exception. Variant has “operations specialists” who address an exceptions queue, not fleet managers who hand-hold the drivers. Variant’s platform optimizes for asset utilization and maximizing loaded miles per week, enabling each tractor to generate more revenue and each driver to take home more money.
Variant has already delivered some impressive results: Its fleet runs 20% more loaded miles per week, has 70% lower driver turnover and is far leaner than the legacy model, with five times as many trucks per operational employee. Now U.S. Xpress wants to keep scaling Variant, quadrupling its size over the next two years.
U.S. Xpress began acquiring new assets for Variant in the back half of 2019, a deep trough for the trucking industry.
At the time, transportation analysts questioned the wisdom of growing the fleet when overcapacity was suppressing rates and asset utilization, but U.S. Xpress was conducting important proofs-of-concept tests with its new technology. By the end of the first quarter of 2020, 100 tractors were running on the Variant platform and seeing positive results. Today about 475 trucks are in the Variant fleet, U.S. Xpress President and Chief Executive Officer Eric Fuller said.
The big question is whether U.S. Xpress can continue to find efficiencies and deliver the same level of outperformance as Variant scales and accounts for a larger proportion of the overall over-the-road fleet.
The first phase of Variant’s rollout will bring its tractor count to 900 trucks, but ultimately there are about 2,100 historically underperforming trucks in the U.S. Xpress over-the-road fleet that can be converted in the next few years. The conversion process depends on U.S. Xpress’ ability to find the right freight and the right drivers for the Variant model.
The “right freight” means an efficient load, explained Cameron Ramsdell, president of U.S. Xpress Ventures. Ramsdell came to U.S. Xpress in 2019 from Coyote Logistics, where he was chief technology officer; Fuller said he was looking for someone who could bring a fresh approach to the asset-base carrier model.
“An ideal load is a highly efficient load — not much dwell between appointment times,” Ramsdell said. “In terms of freight profile or commodity, we’re pretty agnostic.”
“Our line of sight in terms of finding the right freight, which is highly efficient and can speed our network velocity, is that the market that we’re in right now seems to be in the favor of the carriers, which will make it easier to get the freight that we need,” Fuller said.
How the Variant platform works
It’s a great irony of the transportation industry that the techniques and operating models developed by venture capital-backed digital freight brokerages may work even better in asset-based trucking carriers.
One of the main challenges digital brokers have is gathering data on their carriers. Carriers won’t move loads on the digital platform unless they’re offered relevant loads, but digital brokers won’t know if a load is relevant or not until the carrier has operated on the platform and generated some data. The asset-based carrier model resolves that problem, because the trucks stay on the platform permanently. And because Variant is connected directly to its trucks’ electronic logging devices, the platform actually has better real-time views into its drivers’ available hours of service and ability to move a certain load.
“I told Cameron when we were hiring him that we wanted to completely redesign the operating model using the technology that’s available and everything that we’ve learned — good, bad and ugly — about the industry,” Fuller said. “I liked the idea of bringing someone in from the brokerage world, partly because they can only sell their service and what they have day to day. The asset guys have the inherent advantage, but it breeds complacency, and the brokerage world doesn’t have that because they can’t afford it.”
Variant’s platform ingests all of the freight available in U.S. Xpress’ over-the-road network and can also source freight from external sources if it’s a better fit for one of Variant’s trucks. True to its name, the network is dynamic, not static, and constantly evolving to push asset utilization higher.
“The Variant Optimizer is sophisticated proprietary software that automates coordination and orchestration,” Ramsdell said. “Daily load acceptance and scheduling are already 90% automated. The Optimizer is connected to the U.S. Xpress order management system and thousands of other shipments, and we use it to optimize every Variant driver to maximize loaded miles and minimize empty miles.”
Variant loads are typical dry truckload freight; Ramsdell said that drop-and-hook and trailer pools work well in the model and that live loads meeting certain parameters are also compatible.
Drivers receive their loads through an app, which also provides turn-by-turn navigation and hours-of-service clock management tools. Ramsdell’s team is already working on the second generation of the Optimizer, which will visualize and calculate events and layer in more artificial intelligence.
“What we’re trying to solve for is velocity, and keep our trucks moving as much as possible,” Fuller said.
A driver-facing brand
U.S. Xpress envisions Variant as a driver-facing brand. Shippers will continue to engage with the U.S. Xpress brand; Variant trucks may service freight while running under the U.S. Xpress operating authority. The difference is that Variant drivers won’t be micromanaged by dispatchers and fleet managers, will get the opportunity to make more money, and will have the best equipment available.
“The Variant driver has a few years of experience and they’ve made the decision that they want to become a professional driver,” Ramsdell said. “These are folks that want to run hard and run a lot of miles, and want to take a little more control.”
These drivers tend to perform better and drive more safely, and they have the confidence to operate without much human oversight. That’s not to say that Variant drivers are alone on the road: The app makes it easy to chat with other drivers and stay connected. Variant guarantees to get drivers home when they request home time, too.
“Driver satisfaction is a lot less about the tech and it’s about the mission,” Ramsdell explained. “The app is a symptom of a great mission. Even the most technologically sophisticated carriers miss that. We’re trying to be the best employer for company drivers in the industry; that doesn’t require a ton of technology. The real benefit is we treat them like the professionals they are, give them the miles they need, and make sure they get home on time — which is a constraint built into our optimizer — so they aren’t missing major life events.”
Driver turnover is an expensive problem in the trucking industry: Seating a truck costs an estimated $12,000 per driver. It’s not uncommon for enterprise carriers to experience annual driver turnover of 70% or more, and there are periods when U.S. Xpress’ turnover exceeded 100%. Already, the Variant fleet has cut driver turnover by 70%, a sign that U.S. Xpress is finding the right drivers for the model and keeping them happy.
“We’re looking for a certain type of driver who’s fairly experienced in the industry,” Fuller said. “They have really good safety stats and are willing to operate in this highly digitized model. We don’t have fleet managers, and some of the hand-holding that goes into the legacy model doesn’t exist. Variant drivers are highly motivated, driven self-starters, who can utilize the system to get the full benefit.”