DEEPER DIVES: Logistics Is Booming, But Everyone Seems To Be Afraid They Are Going Out Of Business

Good Morning,

First, as always, thank you for joining.

Last week’s newsletter struck a nerve. The surge of new subscribers is awesome, to everyone joining for the first time, WELCOME.

We’re quickly moving from hundreds of industry leaders getting this newsletter each week to thousands. To keep up with everyone’s needs, I promise to keep sharing my best stuff and giving you the information that I use when I work with my clients to save them millions of dollars each year.

Because of the huge demand, I’m going to do something that I haven’t ever done with the newsletter, and that’s follow up last week’s edition with a broader look at the transportation industry.

There were two major things that came up.

First, I had all kinds of last mile providers wanting to convince me of their financials and their overall health. Some even offered to show me their P&L.

This was of course until they found out that I’ve spent more than half my career designing logistics networks and being responsible for creating service models that are fiscally sound. None of them wanted to take a DEEP DIVE into their activity based models and review route by route profitability.

The second was a huge number of people asking about traditional carriers (i.e. doing TL/LTL).

Before getting into some new stuff, here’s the direct link to last week’s edition (some people aren’t familiar with Beehiiv’s platform - so this is in case you couldn’t find it)

Here’s what this issue brings:

• Let’s take a look at the transportation industry. I was asked which carriers do I feel are the most at risk to going out of business in 2025. There’s a lot, but naming names isn’t what’s important to understand.
  
  Relationships built business, but now it just may be your Achilles heel.
  

We Did Everything We Were Asked… And More. But We’re Losing Customers

Everything I write about comes from one of three places.

What I have learned / know / or have experienced during my career, what people tell me because of the visibility I have in the industry or what I research myself.

I often joke that I’m a recovering shipper.

I spent the first 13 years of my career in the food industry. Towards the end of that phase of my life, I was a National Director overseeing daily operations with an OPEX over $100M a year.

I’ve managed external relationships as well as internal teams and assets. Unionized and not.

I’ve been fortunate to know the industry from both sides of the table.

I use that to do two things these days.

1. Help service providers improve their operations and stay stickier with their customers

2. Help shippers / retailers design the best solutions to meet their needs

The question that came up over and over again last week is important.

But in some ways, it’s the wrong question.

There is no "maybe” when it comes to what’s happening in the market.

It’s not a question of if carriers will go out of business, it’s more a question of how many and how soon.

Here’s some context to get us on the same page.

The most recent export of the FMCSA database has 1,017,634 active MCs in the United States. This is after you remove all of those that are specifically tagged to the mail, or any level of government.

That is a lot of active people moving freight day in and day out.

With that many registered businesses, it’s safe to say that the vast majority of shippers out there are barely scratching the surface when it comes to who they get exposed to through their RPFs.

The other important thing to understand is that most of the registered carriers in the US are small.

87% of the registered MCs in the United States operate with 5 drivers or less. 98% are captured when we zoom out to 35 drivers or less.

That means that all of the big logos that you see, all of financial reports and major partnerships that are published, those carriers represent less than 2% of the total carrier pool available.

This tells us two things.

First, a disproportionate amount of freight is moved by a very small number of companies.

And second, that those large incumbents are extremely insulated from threats of smaller carriers taking chunks of their business.

While it’s possible for major shippers to spread more of their volume around - they won’t.

When I was a shipper, I didn’t.

Did I have everything all with one carrier?

Absolutely not.

But I can tell you not one time in the 13 years I was doing that work was I EVER part of a meeting when the C-Suite wanted us to fragment out spend more. The talk track year after year was consolidation and “streamlining”.

The rich keep getting richer.

And while different sources keep touting an “end” to the freight recession, it isn’t coming.

Here’s data from a very popular popular platform.

What you are seeing is the last 12 months of the Truck to Load ratio. Basically, there are 3 trucks available for every load that is being tendered.

To put that plainly, the capacity exceeds the demand. And when that happens, prices don’t rise, they fall.

On the flip side, the majors are massive.

Top LTL Carriers

1. FedEx Freight - $9,106 million revenue (2023), 966,708,391 Miles

2. Old Dominion Freight Line - $5,805 million revenue (2023), 847,485,471 Miles

3. XPO Logistics - $4,671 million revenue (2023), 686,917,915 Miles

4. Estes Express Lines - $4,218 million revenue (2023), 586,187,648 Miles

Top Truckload Carriers

1. J.B. Hunt Transport Services - $4,332 million revenue (2023), 1,658,602,475 Miles

2. Knight-Swift Transportation - $3,910 million revenue (2023), 239,987,588 Miles

3. Schneider National - $2,640 million revenue (2023), 916,556,000 Miles

4. Prime - $2,524 million revenue (2023), 836,273,662 Miles

5. Landstar System - $2,323 million revenue (2023), 517, 550, 803 Miles

With billions of dollars in revenue, these giants control their markets.

You definitely see them losing

And they aren’t selected by every shipper.

But they do absolutely dominate.

To answer the question specifically, what carriers do I see the most at risk of failure in 2025?

Unfortunately, it’s a lot of those smaller companies that did things right.

The ones that built relationships, focused on the quality of their service, did their best to keep their customers informed and always looked to hire the “better” drivers.

While these types of carriers shouldn’t be the ones at risk, they are.

They have limited options to improve their costs.

The built their quality on better people and (in most cases) haven’t invested in enough systems and scale to keep pace with the pressure in the market.

Gone are the days where your SLA performance alone will be enough to offset price.

See, lower rates have been baked into budgets now.

They’ve been down for years.

There isn’t one shipper in the US (or elsewhere) that will all of a sudden be okay with taking substantial price increases.

This is because when a shipper pays for transportation, everything that people are trying to justify higher prices for are the basics that shippers expect.

On time ☑️

Delivered in full ☑️

Communication ☑️

Right truck ☑️

Market competitive pricing ☑️

What can you do if you are operating a TL or LTL business?

1. Make sure you know your actual profit by customer (be brutally honest)

2. Identify the clients and work that make up the highest representation of your network

3. Ensure that that the most representative work is

   1. What you want to be doing

   2. What you’re selling

4. Identify areas of growth that are parallel and stack with what you already have. Getting more from your system is the foundation of operational excellence and cost reduction. Too many people try to do too many things. And while the top line revenue might seem like it makes sense, all too often service providers find themselves not making the margins they expected

5. Invest in technology. If you have been holding off, nothing is going to stop the demands and needs of shippers when it comes to communication, information and transparency

If you have any specific questions related to your business or the work you do, I’m always happy to connect and chat in more detail that probably aligns more to your situation and context.

That’s it for this week. Thanks for being here.