NASSTRAC Q&A with Rich McArdle, president at UPS Freight

Logistics Management Group News Editor Jeff Berman had an opportunity to speak with UPS Freight President Rich McArdle at the National Shippers Strategic Transportation Council (NASSTRAC) Annual Conference in April. McArdle provided Berman with insights and observations on various topics, including the current state of infrastructure, the need for Twin 33-foot trailers, and the economy, among other topics. A transcript of the conversation is below. 

Logistics Management (LM): How do you view the possibility/chances of Twin 33's getting the green light to get on the nation's highways? What type of production and efficiency gains would Twin 33s bring to the LTL sector?

Rich McArdle: When it comes to Twin 33s, 12 months ago we probably would have hit the pause button in that we felt it was going to have to take some time. There was a lot of concern on Capitol Hill within the trucking industry in terms of whether or not it was unified with some opposing messages so we thought the right thing to do was hit the pause button. We realized following the election we had no reason to wait and through our role in Americans for Modern Transportation we are pursuing it again this year. At the end of the day, using Twin 33s has a cost benefit. What we are looking for is that we would like to run Twin 33s on the same national network that we run Twin 28s. They are not going to be running through neighborhoods or city pickups, it is for our linehaul and hub-to-hub type things. The key things we expect to see from it right off the bat are the opportunity for 18 percent more capacity, and the industry could see carbon emissions reduced by 4.4 billion pounds, a 1.3 billion mile reduction, or 200 million gallons saved.

LM: Once again, infrastructure is a hot national topic and funding remains an issue. How do you view this in terms of what the best funding options are whether is be increasing the federal gas tax, or tolling?

McArdle: For a long time, UPS has been [pushing] for infrastructure funding to be increased. It has to be done in a way in which the funds are easy to collect. There also needs to be a low evasion rate so people cannot find another way for people to not pay their share when it comes to funding the Highway Trust Fund and be dedicated to the highways. The key thing is that it has to be a sustainable funding mechanism so it has to have mechanics and triggers within it that enables it to be efficient going forward. Members on both side of the aisle realize something needs to be done.

LM: How do you view the general state of the freight economy as it relates to the general economy and the macro-economy? It seems like there are some mixed signals out there, with job growth decent, as well as manufacturing, while there are some tailwinds from so-so consumer spending and trade pacts i.e. NAFTA.

McArdle: At the end of last quarter, it started to feel like the industry got healthier after seven quarters of annual declines. Hopefully, that trend continues going forward and it starts to become a healthier snapshot. If you look at the industrial production forecast for last year and this year, they almost look identical. We hope it trends up this year, as there are signs that the industry is getting healthier.

LM: It appears inventory levels are heading down, too, is that having a material impact or effect on LTL freight flows? 

McArdle: We are seeing inventories slowly head down. What is going to be interesting moving forward is if the correlation between inventories and freight flows going to be as strong as it was in the past. Things are changing in terms of how it is viewed, due to just in time inventories, as well as the omni-channel positioning companies have. It is going to be interesting to see how strong that correlation is in the future.

LM: Is this a byproduct of the e-commerce effect.

McArdle: Yes, I really think so. Whether we are talking about freight or small parcel, e-commerce has definitely had an influence and it is not going to change. The same trends we saw with small package and how it impacted networks, due to e-commerce, as coming to the freight side and starting to accelerate.

LM: What is your take on the spot market as it relates to the LTL sector? 

McArdle: One thing you are seeing is that the gap between spot and contract pricing is shrinking and that is not a bad spot for the LTL industry for both brokers and carriers.

LM: How do you view the current state of intermodal, given that UPS has a decent amount of exposure to the sector?

McArdle: We have a strong relationship with the rails that goes almost four decades, longer than the UPS acquisition of Overnite. Intermodal service has continued to improve, and we have great relationships with our rail partners. It is an accountable relationship.

LM: Do you view pricing more through contractual rates of revenue per loaded mile or hundredweight? 

McArdle: The pricing climate in the industry is stable as it was last year. Last year our concerns were if we going to bear what we saw around 2008 and we did not see that taking place. It stabilized last year, and we are seeing that again this year. It is a stable environment.

LM: Do you view pricing more through contractual rates of revenue per loaded mile or hundredweight? 

McArdle: We look at it from both sides, as we want to make sure we are covering the costs of our linehaul for our modal transportation. I would say we have a very calculated approach. E-commerce is driving more B2C-type deliveries, and that is where we have to be extremely detailed, as well as residential delivery, too, which is really the next frontier for the industry and is not stopping.

LM: How far out is the LTL sector from turning to dimensional pricing? 

McArdle: It probably has not been as [prevalent] as the industry thought it would be at this point. We have full capabilities for dimensional-based pricing at UPS Freight. The uptake by customers is not quite as quick as we expected. I think it is one of the things that will simplify this industry when you speak about how things become easier. There are three key components to it: one is to make sure we are not overcharging, another being that the space we are selling is appropriately compensated; and the third aspect has to do with the dynamic linehaul planning you can do with the right dimensions. Things are still evolving.