When truckload and logistics giant Schneider National Inc. (NASDAQ:SNDR) acquired less-than-truckload (LTL) and truckload carrier Watkins & Shepard Trucking Inc. and final-mile and IT provider Lodeso Inc. in June 2016, it envisioned penetrating the business-to-consumer e-commerce category with a holistic, “first-to-final-mile” shipping service for furniture and carpeting orders.
The vision died August 1 when Schneider said it would immediately halt the unit’s operations due to what the company called results that were “significantly below expectations.” The unit struggled mightily despite ongoing investments, the most recent being in mid-April when Schneider added middle-mile capabilities to connect the network’s multiple terminals. The Green Bay, Wisconsin-based concern said the unit lost $26 million in the first half of 2019 and was on track to lose another $9 million in the third quarter. The company will take $50 to 70 million pre-tax restructuring charges through the end of the year, apart from a one-time, $34.6 million goodwill impairment charge in the second quarter.
The operation will be fully shuttered by December 31, 2019. Schneider said it would do its best to accommodate shipments already in the pipeline. It declined any further comment.
The shutdown raises questions about the ability of a truckload carrier culture to adapt to the very different operational realities of e-commerce fulfillment, with complex hub and terminal operations that run counter to a truckload carrier’s linear network. Virtually every truckload carrier has explored final-mile for its revenue potential, but most have stayed away. Schneider and rival J.B. Hunt Transportation Services (NASDAQ:JBHT) have been the two carriers with truckload roots that have been most aggressive in final-mile. (Hunt declined to comment for this article.)
For furniture retailers, the questions are less big picture and more immediate, such as who is going to move goods that aren’t already on the move. Founded in 1974 and with a fleet of 943 trucks, 2,043 trailers and 781 drivers, Watkins & Shepard was the backbone of almost every furniture retailer’s delivery operation, according to an executive of a furniture e-tailer that has used Watkins for years. It continued to do so after the Schneider acquisition, and is now looking for alternate supply sources for 70 to 80 percent of its traffic.
Watkins, which focused on the line-haul portion in the Schneider ecosystem, long ago mastered the complexities of the vertical, where a mess-up could result in thousands of dollars in claims. Retailers would opt for an operator like Watkins rather than more generalized providers because the incidence of damage using the latter group was too frequent and costly, the executive said.
“There isn’t a single furniture retailer that doesn’t rely on Watkins to some degree,” said the executive in response to a query as to how many retailers will be affected by the shutdown.
Because Schneider would not explain the reasons for closing the business – it may have been a straight-forward move to shutter an underperforming non-core competency – it is unclear whether the unit suffered from weak demand, unacceptable costs or a combination of both. The executive surmised that the problem lay with the Lodeso last-mile operation, which was touted as a “white-glove” service where furniture is brought into the house, positioned in the proper place, assembled if necessary and old furniture, again if necessary, hauled away, along with all packing materials.
Lodeso was known mostly for its technology platform, which received and processed online orders from retailers and manufacturers and connected those requests with an agent network of about 600 carriers, one of which was Watkins. However, its last-mile delivery performance left much to be desired, the executive said. Damage was too frequent and claims ran unacceptably high. This led many retailers to leave the unit or avoid it altogether. According to the furniture e-tailing executive, the retailer never used Lodeso for the residential delivery portion for fear of product damage.
To compound the unit’s difficulties, it bore the high costs of building out a dense last-mile infrastructure all the while demand was declining. It had 20 U.S. terminals as of June 2016. This perpetuated a vicious cycle of losses that Schneider could no longer tolerate. The e-tailing executive said the company did not use Lodeso, and had no problems with the Watkins line-haul service.
The company expects that goods already tendered to Schneider will be delivered in a relatively timely fashion. It already has other providers lined up to take Schneider’s place, the executive said.