My intention for this column is to provide industry news I believe is impacting you and render my thoughts regarding its implications. My aim is to both give awareness and hopefully, make a difference. Take it as advice, an action plan or just something to think about as you read.
UPS Does LTL � OVNT
Wow, with all the new acronyms flying into the parcel shipping sector, it�s no wonder so many of you are expressing concern, frustration, confusion and misunderstanding in your carrier selection. However, savvy parcel shippers who acquaint themselves with these new company acronyms may find significant savings for their efforts. Case in point: On August 4, 2005, the Board of Directors of less-than-truckload (LTL) giant Overnite Corporation (OVNT) will vote on a proposal to approve and adopt the agreement of merger with United Parcel Service in a cash transaction valued at approximately $1.25 billion.
This transaction will allow UPS to expand its service portfolio by offering a variety of LTL and truckload (TL) services to its North American customers. It also will immediately position UPS as a top US LTL carrier given that Overnite Corporation is one of America�s leading LTL transportation companies.
�Overnite is a perfect strategic fit for our company,� said Mike Eskew, UPS chairman and CEO. �We want to offer our customers the broadest portfolio of transportation and logistics services available from a single source, and this is an important capability that we needed to have. The single-source solutions offered by UPS now will include a full suite of heavy freight services via air, ground and ocean.�
The acquisition of Overnite will level the playing field with rival FedEx, who bought Viking Freight in 1998 and American Freightways in 2001, then bundled its service areas and re-branded the LTL offering as FedEx Freight. Shippers have shown great enthusiasm ever since. Earlier this year, Yellow Roadway Corporation (already a result one giant merger) bought LTL carrier USF Corporation.
I was surprised that UPS waited so long to make an acquisition. During my travels, speaking engagements and facility visits, I speak with a great number of high-level personnel whose job it is to improve supply chain efficiency, while at the same time reducing costs. A great majority have told me how much the FedEx integration has benefited their companies in the form of more competitive rates and better service. Freight hauled by trucks in the US represented $671 billion in revenue in 2004, according to the American Trucking Association (ATA). With the small parcel market going flat, this move makes a lot of sense for UPS.
In addition, one of the complaints I frequently hear about is the frustration these same people experience in having to work with dozens of companies for their transportation needs. While I do not believe that any one company is the best in all categories (and am still a large proponent of rate shopping), it does reach a point of diminishing returns. Various shipping processes, different staging areas, multiple negotiations, a variety of salespeople to work with and dissimilar bills to sort all create a frustrating complexity for managers. And from the receiving end, more and more large organizations are limiting the number of carriers that deliver goods to them because of the time and inefficiency of managing the process. So consolidation could be a positive for shippers.
For example, let�s look at just one area with tremendous savings potential, consolidation of freight invoices. According to a recent Logistics & Transportation annual survey, the average billing error rate on transportation is seven percent. An entire industry of freight auditors has been developed to satisfy the need to check freight invoices. The complexity is multiplied by the different bills from express, ground and multiple LTL carriers in different formats. Can you begin to imagine the savings available to customers by receiving a single bill from one company for all their transportation? They�re immense and would certainly simplify the process of auditing.
UPS has led the industry in providing a single source for their customers. With the addition of LTL and TL services, it is now positioned to become a true, single source provider. We can only hope that others will follow suit and that the end result creates competitive pricing and simplified shipping for you, the customer.
Mark Taylor, MBA, is the CEO of TAYLOR Systems Engineering Corporation, a technology and consulting firm that helps organizations save money in their shipping operations. He is a professor at Rushmore University, a professional business speaker and a business coach. He can be reached at 734-420-7447 or by e-mail at mtaylor@TAYLORSystemsEngineering.com
