A Guide to Over-the-Road Freight Spend Management

Keywords: Transportation Management System (TMS), Transportation Execution System (TES), Managed Transportation Services (MTS), ARC Advisory Group.

Overview

When looking at over-the-road transportation, there are first mile, middle mile, and last mile deliveries. First mile is a trip to a local or regional transportation or distribution hub. The middle mile connects a distribution hub on one side of the country to a hub on the other side. And last mile involves delivery from that destination hub to businesses, stores, and consumers in the destination region. Each of these segments has its own benefits and challenges, as well as strategies for managing freight spend. 

Understanding Over-the-Road (OTR) Shipments

According to the American Trucking Association (ATA), trucks move roughly 72.6 percent of the nation’s freight by weight. And just how much is that freight weight? The ATA estimates that nearly 12 billion tons of freight (primary shipments only) are transported by trucks in a given year. This equates to over 31 million tons per day. There were 13.86 million single-unit (2-axle, 6-tire or more) and combination trucks registered in 2021, representing 5 percent of all motor vehicles registered. And these trucks certainly cover a lot of miles. In 2021, for example, 327.48 billion miles were traveled by single-unit and combination trucks, and 195.62 billion miles were traveled by combination trucks. And from a job market standpoint, 8.4 million people were employed throughout the economy in jobs that relate to trucking activity in 2022, excluding the self-employed. Of this number, 3.54 million truck drivers were employed in 2022 (an increase of 1.5 percent from 2021).

For over the road shipments, we can identify three modes: truckload (TL), less than truckload (LTL), and parcel. Here is a breakdown of these modes, as well as a look at some of the largest carriers within each mode. Multimodal is excluded as it involves at least two modes of transportation which could include air, ocean, or rail.

Full truckload (TL) shipments take up the space or weight limit of an entire trailer. This mode is a great option for companies that have high shipping volumes or need to expedite delivery timeframes. Essentially, a company knows that the entire shipment will be delivered at once, which helps reduce the risk of delays, and reduces the risk of damage as there is less handling of the freight. Truckload also makes more sense when the freight weighs more than 15,000 pounds, or the company has more than 10 pallets worth of goods to transport. The largest TL carriers include Knight-Swift Transportation, J.B. Hunt, Landstar Systems, and Schneider.

Less than truckload (LTL) shipping allows multiple shippers to share space on the same truck. It is cost-efficient as multiple companies are paying for their portion of trailer space. Generally, LTL loads will end up being between 100 pounds or 45 kilos (the limit for most parcel carriers) and 10,000 pounds or 4,500 kilos per load – when a full truckload is more appropriate. As the space is allotted, this means companies only pay a fraction of the cost of the truckload. There’s also the added flexibility that small and midsize companies can benefit from with LTL shipping. The largest LTL carriers include FedEx Freight, Yellow Corp, XPO Logistics, and Old Dominion. 

For long haul over the road shipments, there is also a middle ground known as Partial Truckload. Partial TL covers shipments that are larger than LTL but less than a full truck trailer. These shipments usually range from 8 to 18 pallets, 8,000 to 27,500 pounds, and occupy more than 12 feet of linear space in a trailer. Carriers usually do not stop at hubs or terminals, leading to a higher percentage of on-time deliveries, less handling of freight and less damage.

The final mode covered for over the road shipments is parcel. Parcel shipping has historically involved packages that are below 150 pounds and can be lifted without assistance. Parcel shipping does carry a higher risk as packages can get lost or damaged more easily due to their size. For this same reason, there are generally more checkpoints and possible transfers involved, which can help buyers track their shipments more closely. There is also added flexibility for scheduling pickups with parcel companies. The largest parcel companies include UPS, FedEx, and DHL.

Managing Freight Spend

When it comes to managing your freight spend, there are a few options to consider. The three traditional methods are the use of a transportation management system (TMS), transportation execution system (TES), and managed transportation services (MTS). Ultimately, it comes down to whether shippers want to manage their freight spend in-house or outsource it. 

The most common application for in-house management is TMS. A TMS offers optimization capabilities across multiple modes to improve service levels and reduce freight spend. The alternatives to TMS include transportation execution solutions and managed transportation. Transportation execution solutions are mode specific and lack optimization capabilities, but for shippers with simpler transportation requirements, it is often all they need.

Large shippers with complex needs may turn to managed transportation services providers to plan and execute their loads. These MTS providers may use an in-house developed TMS. Or, if they use an off-the-shelf TMS, they may get a volume discount. In some instances, they may not use a TMS at all in managed transportation deals, although these providers lack a significant presence in the market.

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