The US car carrier sector is in transition, and while many companies are disappearing, carmakers and 3PLs are giving more business to smaller, niche players for certain routes, reports Barry Cross

The US automotive outbound sector has seen chronic failures among major companies even before the axe of the financial crisis cleaved off about 30% of new car sales. While the recession has left even more companies by the wayside, it has also given opportunity to some asset-light 3PLs to make moves in the sector, as well as paved the way for new, smaller players to buy trucks at liquidation prices and capture niche business.

UPS Automotive Industry Solutions (UPS AIS) is one such player in the 3PL finished vehicles market to make the most of the crisis. The company works for OEMs, dealers and body modification companies (“up fitters”). Ford, with whom it has worked since 2000, is one of its main clients, while it also has agreements with Georgia-based dealer Superior Chevrolet and with Monroe Truck Equipment in the up-fit sector. Toward the end of 2009 UPS AIS was also hired by Manheim, an automobile auction company, to move used vehicles from its 77 locations around the US to customers.

According to operations director, Wayne Cabeza, UPS AIS makes use of road, rail, sea and, on occasions, air. “On finished vehicles, it’s not unusual to use a combination of modes to fulfil a contract. Exactly how the move is undertaken is decided in consultation with the client,” he says. Divisional general manager, Paul Hargadon, says that while UPS AIS makes use of its parent company’s fleet of both delivery vans and tractor-trailers, the vast majority of moves are undertaken by partner carriers.

“Our business during the recession has actually grown in the automotive sector. This is because in a downturn clients look for new solutions and we have been able to provide these, attracting new business in the process,” claims Hargadon. Cabeza stresses that existing contracts are not solely volume-based and that UPS AIS has learnt to be flexible with its clients as their own volumes have fallen away.

Good time for a Plan C
Both Cabeza and Hargadon believe that, despite seeing several partner carriers forced out of the market, there is still a wide choice of carriers in most regions. “To provide necessary service levels, we maintain a very large carrier-base, which incorporates a large degree of flexibility. While this includes a lot of large carriers, whose cost base is better suited to volume hauls, we also work with a tremendous amount of small carriers. We opt for the carrier best placed to provide the service level we need and the one that has the right type of equipment,” Cabeza says. Significantly, Hargadon reveals that many of the smaller players that have been around for a long time have also grown during the recession. Other, relatively newer carriers, having spotted a gap in the market, have even achieved operational start up. “Some of our clients might only want to move one or two vehicles within their network and that type of business is much better handled by a smaller carrier,” Cabeza explains. Make way for the little guys The US car carrier sector is in transition, and while many companies are disappearing, carmakers and 3PLs are giving more business to smaller, niche players for certain routes, reports Barry Cross.

“On occasions, we’ve persuaded some of the smaller carriers to expand as rivals have dropped out of the business.” Interestingly, prior to the downturn, these niche providers were often able to make money by simply serving individual customers, but with modest investment during recent times they have been able to add capacity.

Hargadon emphasises that, whatever the size of the partner carrier, each has to be able to meet agreed service quality levels. Many are screened out. Some carriers have even taken themselves out of UPS AIS’s network since they have not been able to maintain standards during the downturn. The constant monitoring of partner carriers invariably means that potential trouble is spotted early and acted on.

Both men stress that contingency plans are in place, allowing UPS AIS to call upon emergency capacity should a partner carrier suddenly collapse. Not only does there have to be a Plan B, they note, often a Plan C has to be in place, too. According to Hargadon, “In today’s marketplace, people have to do more to secure a ROI [return on investment] and we have been able to offer them ways of achieving that. Companies like ours have to be proactive in putting suggestions forward.”

He cites the example of Superior Chevrolet, where UPS AIS was able to expand the dealer’s network so new markets were opened. Similar advances have also been made for companies undertaking body modification work. This results in more sales for the client, more business for UPS AIS and greater amounts of work for its carrier partners. “All carriers, in turn, can come to us and put forward ideas,” says Hargadon.

A market splintering rather than consolidating
One of UPS AIS’s partner carriers is Tran Tech, which began operations in January 2004. It was founded by Kenyon Calender and partners Dale Tann and Joe Parin. Calender’s original introduction to the automotive business had been through his company, KC Transportation, which specialised in delivering automotive parts to US assembly plants. He was therefore well aware of what he was getting into when he branched out into the haulaway businesses.

“Knowing your capabilities when going into a new sector is very important. Usually, however, guidelines are also very clearly set out before contracts are awarded and accepted,” Calender says.

He recalls that, prior to getting his break, he had been in contact with the logistics departments at all the US automotive OEMs, who had continually expressed an interest in potential new options for their haulaway business.

Tran Tech currently operates in the US Midwest, with terminals in Carleton (Michigan) and Nashville (Tennessee). On numerous occasions, the company has also provided additional lift at rail heads throughout the country, although all its contracted daily business is within the Midwest. In terms of equipment, this has evolved in line with the highly volatile market conditions over the last five years. The initial fleet consisted of around 30 trailers that held three units and 40 trailers with a capacity for six or seven units. At the time, recalls Calender, there was a big demand to move large amounts of vehicles over short distances. However, over the next 2-3 years, that demand diminished and Tran Tech has since either sold or traded in the smaller trailers and replaced them with much larger transporters (“stingers”) that can take loads of up to ten vehicles. Nowadays, with 42 power units, Tran Tech is considered a mid-size operator.

Tran Tech’s experience is significant in that it started up in what was a boom period for the automotive industry and has survived the crash, whereas many larger and smaller competitors have fallen by the wayside. So how was Calender able to remain in business?

“We started with no contract business at all, which in retrospect was good. We were a very flexible option for our customers and provided them with options whenever they needed backup capacity. That gave us time to understand our costs, diversify our equipment and decide what direction to grow our business in,” he explains.

During recent times, Calender says he has seen a lot of competitors disappear as the downturn began to bite. This included one the largest haul away carriers in the country, PTS, which ceased operations all together. Numerous smaller carriers, operating fewer than ten transporters, have also either closed or downsized significantly. “We don’t think that either the downsizing or the closure of carriers is over yet,” he warns.

Nevertheless, he also points out that innovation in this sector is far from dead. A number of new, smaller carriers have appeared in the automotive haulaway sector specifically on the outbound side. “I think with some of the larger companies either closing or downsizing a small niche has become available for start-up companies,” says Calender. “In fact, we are seeing both manufacturers and 3PLs actively trying to use new companies. This policy seems to reflect the old adage of ‘not putting all your eggs in one basket’. Manufacturers learnt this to their cost; they were genuinely surprised when many of the larger carriers were forced out of business.”

Quite a few of the new, smaller operators emerging in the haulaway sector were helped by the misfortunes experienced by some larger ones. A huge amount of redundant equipment was sold at auction some 18 months ago at low prices that helped new companies emerge and others to grow.

However, while equipment is a significant part of getting started in the sector, Calender stresses that there are other costs, notably those connected to IT, that prohibit companies from becoming close suppliers to OEMs or 3PLs. As a result, many new entrants usually provide supplemental capacity for the main contract carrier.