FedEx makes trucking move

FedEx Corp. is buying Watkins Motor Lines -- the largest privately run less-than-truckload carrier in the nation -- and the best ticket it has for bulking up in a market showing impressive gains.
Neither FedEx or Watkins would confirm details, but sources say FedEx will announce the acquisition -- internally dubbed "Convoy" -- as early as June 1.

Analysts say the price could range up to $1 billion.
Watkins, about a third the size of FedEx Freight, gives the division 139 terminals, 10,000 employees and trailers, 3,400 tractors and all its customers across its North American network.

"If the deal does take place, Watkins gives FedEx the ability to build density and do long haul, which is where Watkins is strongest," said Satish Jindel, transportation analyst in Pittsburgh.

The buy would also give FedEx Freight seamless services into Mexico and Canada -- which it now serves through contractors -- and a truckload division.

Last year, Watkins' revenue exceeded $1 billion, up more than 7 percent from 2004.

"Most of FedEx Freight's business is one-, two- or three-day. But in the last few years, customers have been wanting them to do longer-haul stuff," said Art Hatfield, Morgan Keegan analyst.

"Watkins is more set up for long-haul distances."

The less-than-truckload (LTL) leader is YRC Worldwide -- formerly Yellow Freight Corp. -- which controls about 30 percent of the roughly $35 billion LTL market.

No. 2 and No. 3 are Con-Way and FedEx Freight. The acquisition would move FedEx Freight firmly to the No. 2 spot.

Family-owned Watkins, based in Lakeland, Fla., has emerged as one of the nation's 10 largest LTL carriers in a period of intense carrier consolidation.

"At first, you saw regional companies merging to get a national presence," Hatfield said.

"Now, you have some who want to consolidate to improve their market share and service offerings."

And just as attractive to FedEx is the fact that Watkins is a nonunion carrier, one of a small handful of LTLs -- with origins mostly in the South -- "that has survived as nonunion companies," said Dick Armstrong, principal in Armstrong Associates in Stoughton, Wis.

"The long and short of it is that the W2 wages for a nonunion LTL driver are going to be about $45,000 a year. Union drivers are going to make more."

Although diesel prices have more than doubled since 2003, the shortage of truck drivers is now driving many of the big decisions in trucking companies.

"You can't shave costs on salaries now. Fuel may be precious but drivers are more precious," Armstrong said.

Volume in the less-than-truckload industry is growing about 3 to 5 percent a year. Revenue is up slightly more, but still easily outpacing the nation's economic growth.

Factors feeding the push include shippers' wish for "just in time" delivery, which saves them inventory and insurance costs.

Changes in Department of Transportation rules limiting the hours truckers can be on the job have pushed some long-haul business to the LTL carriers.

FedEx is a relative newcomer to the LTL business. In 1997, it acquired Viking Freight though its purchase of Caliber Systems.

"Viking allowed FedEx to get experience in the LTL business. They liked it so much, they bought American Freightways in 2000," Jindel said.

In 2002, FedEx rebranded the companies under its own name -- one of the five most recognized companies in the nation -- and watched sales accelerate.

In 2005, FedEx Freight's LTL revenue was up 19.6 percent to $2.8 billion.

"FedEx used technology, marketing and pricing discipline to to bring the margins up. But they also started offering customers bundled services, saying 'I can take your parcels and your freight too,' " Jindel said.

For customers, it meant better service. Invoicing that used to go to several now could go to one.

UPS didn't have an LTL carrier until it bought Overnite in 2005 to get into the game..

"It's too early to tell how it's doing because there is a time lag to put your services in place and leverage the brand," Jindel said.

"So far, Overnite has not done for UPS what FedEx Freight did for FedEx."

Watkins is part of Watkins Industries, which includes SunCo Carriers Inc., an LTL with refrigerated trailers; Watkins Canada Express Inc., Land Span, the truckload line; and Highway Transport Inc., a line of tanker trucks.

Renewed Hope for Overnite/UPS Freight Workers

UPS Freight Workers Deserve Same Strong Voice as Other UPS Employees

After going out on strike with the Teamsters for three years at Overnite, Anthony Pope has a renewed sense of hope that he will soon have a strong voice at work as a Teamster.

Pope, a dockworker who has worked at Overnite for 10 years, is excited to learn about the union’s effort to bring its nearly 15,000 employees into the Teamster family.

“I welcome the Teamsters with open arms and I have a lot of coworkers who feel the same way,” Pope said. “We have fought hard to gain a strong voice as Teamsters. It’s been a long struggle.

UPS has renamed the recently purchased Overnite Transportation “UPS Freight.” In the coming weeks and months, the union is launching a member mobilization and education drive. As part of this effort, freight and UPS Teamsters will be asked to speak with UPS Freight workers about the benefits of union membership. Those benefits include a strong voice on the job and maintaining gold-standard wages and benefits by raising density at UPS—the largest Teamster employer with more than 200,000 union members.

A Long Struggle

The union’s plan is music to Pope’s ears. Pope and other Overnite workers represented by the Teamsters led an unfair labor practices strike against the company from October 1999 until October 2002.

“We’ve got a lot of guys who don’t understand the benefits of the union,” Pope said. “When we went on strike back in ‘99 for three years, we had a lot of people who didn’t understand why we were on strike. We were striking for respect and for a better environment. Teamster members can really educate workers here.”

During his 10 years on the job at Overnite, Pope said it’s intimidating to confront management about concerns he and his coworkers have.

“Being Teamsters will give us the strong, unified voice we need to make our workplace more just,” Pope said.

The rebranding of Overnite will include a transition to the UPS logo and a color scheme combining Overnite’s gray with UPS’s signature brown.

But the union is seeking a different transition—it will work hard to provide UPS Freight workers with union representation.

Worker-to-Worker

“The nearly 15,000 employees at UPS Freight—the former Overnite—deserve the same strong voice and strong representation that the Teamsters provide to workers at UPS,” said Jim Hoffa, Teamsters General President. “With our members’ help, we will make that happen.”

“Our members’ involvement is vital because they know firsthand the benefits of being in the union,” said Ken Hall, Director of the Parcel and Small Package Division. “Our members at UPS, our freight members and others, are on the front lines in this effort to educate UPS Freight workers.”

“Our members have struggled to achieve justice at Overnite,” said Tyson Johnson, Director of the Teamsters Freight Division. “This effort is a new chapter in that struggle and we will succeed.”

UPS bought Overnite last year for $1.25 billion. UPS Freight workers’ new uniforms and branded trucks will begin appearing May 1. The rebranding of Overnite’s facilities and fleet, which includes 22,000 trailers, will occur over the next several years.

The Overnite name dates back to 1935. Motor Cargo, which became a subsidiary of the Overnite Corporation in 2003, dates to 1922.

Nonunion UPS Freight will continue to operate independently of the unionized UPS package delivery network, company officials said. However, sales forces of the two companies will sell both freight and package services. UPS said it conducted a sales pilot late last year in which package delivery salespeople sold ground freight services.

Protecting Members

In the meantime, Hall said the union will make sure members’ interests are protected.

“The Teamsters Union will remain vigilant by monitoring the Overnite/UPS Freight operations to make sure that no Teamster work at UPS is diverted to the new operation,” Hall said.

Charles “Hollywood” Watkins, an International Union Organizer with the Teamsters who worked at Overnite for 10 years until 2000, said he’s happy to hear about the plan to educate his ex-coworkers.

“We need to make organizing Overnite a priority,” Watkins said. “There’s always the chance that some Teamster work could be diverted to UPS Freight, and we need to make sure those workers become Teamsters so they have the same benefits and protections as UPS workers.”

It’s also vital that freight and UPS Teamsters take part in the member mobilization and education drive, he said.

“This effort is very important because this affects our members’ lives,” Watkins said

ABF Sponsors Professional Golfer Shane Bertsch on PGA Tour

ABF U-Pack Moving, a service of ABF Freight System, Inc., is sponsoring Shane Bertsch during the 2006 PGA Tour. Bertsch, a PGA professional since 1994, rejoined the PGA Tour this year after finishing eighth on the 2005 Nationwide Tour money list. His best finish after 15 events this year is seventh at the BellSouth Classic in Duluth, Ga.

"This sponsorship will help to build brand recognition for U-Pack while strengthening relationships with customers who cherish the game of golf," said ABF® Vice President of Market Development Jim Ingram. "Like ABF, Shane Bertsch always strives for excellence in every endeavor. Before he turned his full attention to golf, for example, he had a promising junior tennis career that included matches against Andre Agassi. We're proud to support such an all-around competitor. We wish him the best of luck on the Tour."

A native of Denver, Bertsch is a 1994 graduate of Texas A&M University. He plays out of Glenmoore Country Club in Englewood, Colo. He and his wife Monica have one child, Brianna Dakota.

Secrets for reducing LTL costs

With rates on the increase for less-than-truckload (LTL) services, buyers and logistics managers are getting antsy. Put sky-high gas prices on top of that and any company shipping anything is probably extremely anxious about the cost of doing so—notably LTL shippers.

The rate increases came from LTL carriers fast and furious in April. For example, FedEx Freight implemented a 5.95% general rate increase effective April 24. Vitran implemented a general rate increase of 5.9% effective April 3 and Con-Way raised its LTL rates 5.5% in April. LTL giant YRC Worldwide (the combination of Yellow and Roadway) reported LTL tonnage up 4.6% in the first quarter and revenue per hundredweight up 7.3%. And ABF said it raised its rates in the first quarter an average of 3.3%.

At the same time in April, fuel prices including diesel spiked so high, it prompted legislators to call for an investigation into price-gouging by oil companies. On April 24, the national on-highway average for a gallon of diesel fuel sat at $2.88.

So what can shippers do about it? To answer this question, Purchasingrecently polled a group of LTL shippers for their suggestions. Troy Minnaert, manager of expedited and specialized transportation at Anheuser-Busch in St. Louis, says LTL buyers should require all carriers to use a single rate base to rate their freight bills. "This will help your company in contract negotiations because you can compare apples to apples when evaluating carrier bids," he says. "It also helps in analyzing specific lanes for cost analysis and auditing of freight bills. The resulting LTL program will have uniform pricing less the negotiated discounts, regardless of which carriers are used."

Robert Newton, a senior buyer at HH Sumco in Indianapolis, says every carrier should provide some kind of discount program, even in today's pricing environment. While it may seem like an obvious suggestion, a surprising number of purchasing departments may not have done a deep-dive negotiation in its LTL spend area for some time—or may not have control over the carrier selection in some inbound cases.

"If your company does not have an LTL carrier with a discount program call one up and ask what kind of discount you can get," Newton says. "To ship without some kind of discount will almost certainly double your freight costs, if not more."

Newton points out that sometimes local buyers or logistics managers at the plant-level may not realize its parent company has a newly negotiated deal with a certain carrier to take advantage of. "If a buyer at a plant can coordinate with the organization at the corporate level, there may be a discount structure in place or it may be time to use all of the volumes to negotiate a discount," he says.

Tamra Lewis is traffic coordinator at SafeFence, an Idaho-based manufacturer of electric fencing products. SafeFence has tariffs with up to 10 LTL carriers, but has four core carriers it works with, Lewis says. Like many shippers, SafeFence has seen price increases from LTL carriers and fuel surcharge increases, which required her company to increase its product prices.

But one strategy Lewis uses to minimize the impact of LTL rate increases is the use of online bidding tool FreightQuote, which allows a more streamlined bidding process for time-sensitive shipments. Lewis says some carriers like to be included in the FreightQuote bids, but others really dislike the increased pricing competition.

Lewis emphasizes online tools are especially useful to midsize shippers that may not have the volumes to leverage with carriers in pricing negotiations.

Lee Cornell is a logistics manager at Firstar Fiber in Omaha, Neb. and has seen fuel surcharges increase up to 25% this year. He says there is a definite advantage to knowing not only the base rates a carrier is using, but fully understanding the fuel surcharge in use.

"All of the carriers use a different fuel surcharge and if you cannot find it or understand it, you cannot properly compare pricing," Cornell points out, adding that a concerted effort to consolidate LTL into truckload shipments is always good advice.

Cornell also recommends tracking service levels of carriers as closely as possible, but says it can be difficult. "When there is a service problem, carriers usually say it is because of a late pickup at the last stop or because of a driver shortage."

And certainly there are always options in terms of carriers. While the LTL industry has seen some consolidation in recent years, Gary Lozowski, logistics commodity manager at Invensys in Foxboro, Mass., says there are some very strong second-tier regional LTL carriers that are hungry for business in the current LTL environment.

"For example, we use Brandt Trucking in several states in the Midwest and they are consistently more flexible in terms of service and pricing than many larger carriers are," he says.

Some businesses are overhauling their entire supply chains to lower the impact of increased trucking costs. For example, the San Diego Union Tribune recently covered the story of Olhausen Billiards, a company that had been manufacturing its pool tables in San Diego since 1973, but has decided to move its factory to Tennessee because it is more centrally located for U.S. distribution and will lower the company's trucking costs. "We're on the western edge of the continent, while 65% of our business is east of the Mississippi," Olhausen president Gregg Hovey said. Moving to Tennessee will shorten its average shipments and decrease its fuel spend considerably—enough to justify moving its plants halfway across the country.