Controversial Purchased Transportation practice hinders true visibility and direct connectivity
It’s long been trucking’s “dirty little secret” – although for industry insiders it’s hardly a secret at all.
Four years ago, a widely shared and discussed LaneAxis report revealed that the country’s biggest publicly-owned trucking companies outsource, on average, over 42% of their freight to small Carriers and owner-operators – a practice known as “purchased transportation.” When this happens, most shipping companies contracting with the “big boys” have no idea that small mom-and-pop Carriers are the ones actually hauling their freight. This is commonly referred to as a “double-brokered” load.
Fast forward to 2020, and most of the companies on that list are still at it.
Take JB Hunt for example – the third biggest trucking company in the U.S. In 2016, after evaluating publicly available filings, we reported that JB Hunt spent roughly 48% of its annual revenue on purchased transportation.
Four years later that number hasn’t changed a single digit. Per its most recent public filings outlining its 2020 Q1 and Q2 financials, JB Hunt is still spending exactly 48% of its $2 billion+ operating revenue on purchased transportation.
Meanwhile, Landstar Systems – the fourth biggest trucking company in the U.S. – just announced it spent 92% of its revenue in Q1 2020 on purchased transportation (or as the company calls it: “BCO” – Independent Business Capacity Owners).
These two trucking titans are hardly alone in committing so much capital to a process that can thwart true Shipper visibility while cutting profits for independent Carriers.
FedEx, for example, now commits a full 25% of its cash to purchased transportation.
“A quarter of FedEx’s total expenditures goes toward purchased transportation, which includes the costs of services purchased from contractors,” reports Forbes. “This figure has been going up for the company over the last few years, as it partnered with third party vendors to meet the volume growth. In fact, it is even higher than that for its peer, UPS.”
Forbes says UPS spends about 20% of its total expenditures on purchased transportation.
Lost Visibility for Shippers AND Consumers
In the cases of FedEX and UPS, when freight is outsourced it’s not just shipping companies losing visibility, it’s all of us – the consumers – losing visibility. Consider that Amazon itself outsources much of its freight to UPS and FedEx (in addition to independent carriers). So if UPS outsources a shipment that Amazon outsourced to them, real-time package visibility is often gone. How many times have you clicked a tracking link from UPS, FedEx or Amazon, only to realize your package is currently residing somewhere in freight purgatory? No one seems to know where your package is, and two-day delivery promises are often shattered.
LaneAxis CEO Rick Burnett expounded on the problem in the company’s original report: “Our findings are clear – many Shippers likely aren’t getting the visibility they think they are,” he explained. “Large Shippers and Carriers may be able to manage their own fleets effectively, but with so much freight being outsourced to small Carriers with six trucks or less – which is 97% of the trucking industry – that’s a problem. There’s very little visibility into that network.”
In essence, these massive Carriers and delivery companies are serving as de-facto freight brokers, which is exactly what LaneAxis seeks to eliminate. FreightLINK by LaneAxis now gives Shippers the ability to deal directly with the very same small Carriers that are already hauling their freight – often surreptitiously – via purchased transportation.
Squashing the Status Quo
In trucking, the more things stay the same, the more they tend to stay the same. That’s because the status quo benefits too many big players.
LaneAxis is focused on squashing the status quo. Purchased transportation adds an extra layer of inefficiency, cost, and diminished visibility that must be eliminated.
LaneAxis has long had an accurate pulse on the heartbeat and inner-workings of the trucking industry. It’s a major reason our Shipper-to-Carrier direct solution is resonating with so many across the freight transportation landscape.
To learn more, visit Laneaxis.com.