Innovator of the Year: Lakeville Motor Express

'It was clear to us that we needed to take the initiative to formulate a strategic alliance with other strong, service-oriented, profitable regional carriers that had similar values for providing exceptional customer servic and transit delivery.' -- Pete Martin, LME president"It was clear to us that we needed to take the initiative to formulate a strategic alliance with other strong, service-oriented, profitable regional carriers that had similar values for providing exceptional customer servic and transit delivery." -- Pete Martin, LME president

For a bustling less-than-truckload carrier, the corporate office at Lakeville Motor Express in Roseville, Minn., seemed unusually quiet the last week of February. The cubicles of computer programmers, sales representatives, accountants and other administrators were empty.

A large contingent of LME employees had traveled to Chicago to open a new service center. The company already had one service center in Chicago’s south side, and after three months of planning, a second facility was set to open on March 1.

This second facility is unlike any other among the company’s 34 terminals in 10 Midwestern states. In fact, the service center is unusual if not unique for the entire trucking industry.

LME opened a “hybrid” service center with Averitt Express, a large LTL carrier that operates predominantly in the Southeast. Averitt, based in Cookeville, Tenn., already operated two Chicago facilities – one in the north side, and one in the south. The two companies worked closely together to consolidate their Chicago operations from what otherwise would have been four facilities down to two.

As of March 1, LME employees were onsite with counterparts from Averitt to coordinate the pickup, delivery and linehaul of all freight movements into and out of Chicago. Averitt is providing local pickup-and-delivery services for LME out of both terminal locations, with each company maintaining separate linehaul, sales and customer service functions.

“To me, those are the types of innovative activities and strategies that have to be formulated and put into action in order to help us become more environmentally responsive, while at the same time being able to effectively respond to all of our customers’ transportation and logistical requirements,” says Pete Martin, LME president.

The hybrid operation with Averitt demonstrates the type of innovative thinking and leadership that distinguishes LME as Commercial Carrier Journal’s 2009 Innovator of the Year. The joint service operations with Averitt is part of a broader strategy called the Reliance Network, which was set in motion in October 2007 when Martin and LME’s executive management team met in Chicago with the executives of five other regional LTL carriers, including Averitt.

Forming the network
On March 1, 2008, exactly one year prior to opening the hybrid service center, LME and the five other LTLs announced the formation of the Reliance Network, an interline arrangement that enables each partner carrier to provide customers with seamless nationwide and international LTL, truckload and supply chain freight services.

From a business standpoint, LME had the most immediate need to form this strategic relationship. Prior to meeting with the other LTL executives, Martin had decided to end a 12-year strategic alliance called ExpressLink with Estes Express and TST Overland Express.

Through ExpressLink, LME had provided expanded LTL and truckload coverage outside its Midwest operating region. Estes provided the pickup-and-delivery services for LME in the East, West and South, while TST Overland provided coverage in Canada.

The ExpressLink network had been rewarding by enabling LME to expand its market share by offering customers more service capabilities on a national and international basis. Company revenues were less than $50 million when LME started the agreement and $115 million when the agreement officially ended on March 1, 2008.

The end of the agreement became inevitable with Estes’ continued expansion into LME’s Midwest territory, a move that began to create confusion in the marketplace. “It was a mutual decision once they announced their intent to continue to expand into our service area,” Martin says.

Without finding a suitable replacement for the extended service capabilities that ExpressLink provided, LME estimated it would lose 25 percent of its revenue. Without panicking, Martin says he and the entire executive management team began looking for other reliable service providers.

“When we started to see the writing on the wall, we prepared a laundry list of things we would like to change in a future relationship,” Martin says. “There never was an option in our minds that we would not be able to form a strategic alliance that would allow us to serve customers in the manner we had through ExpressLink.

“Our objective is to be a transportation solutions provider,” Martin continues. “In looking at the changes to the supply chain, supply chain management and the logistical issues our customers face, it was clear to us that we needed to take the initiative to formulate a strategic alliance with other strong, service-oriented, profitable regional carriers that had similar values for providing exceptional customer service and transit delivery.”

Coming together
In searching for new network partners, the first person Martin contacted was Mark Davis, vice president of pricing for Averitt. Martin knew Davis from an industry association; both served on the board of directors for SMC3, a company that offers pricing and technology services for LTL carriers.

From this initial conversation, Martin and Al Bucher, executive vice president of LME, met with Averitt’s management team. In meeting with Averitt, Martin became aware of other interline arrangements that the company already had with strong regional LTL carriers, most notably Pittsburgh-based Pitt Ohio Express, CCJ’s 2007 Innovator of the Year.

Martin had not been aware of the arrangement with Pitt Ohio until after the meeting with Averitt’s management team. In short order, the three companies joined with three other nonunion regional carriers to form the Reliance Network to provide coverage across North America: LME (Midwest), Averitt (South and Southeast), Pitt Ohio (Mid-Atlantic and Central States), Canadian Freightways/Epic Express (Canada), DATS Trucking (West) and Land Air Express (New England).

At the first Reliance Network meeting in October 2007, Martin brought the network’s framework to the table.

“We were very pleasantly surprised and encouraged as we began discussions with Reliance Network partners to better understand their desire and commitment to form a national alliance that would allow them to service regional markets on a national and international level,” Martin says. “I was surprised at the energy and enthusiasm. It was almost electric.”

To join the Reliance Network, other partners voluntarily ended some existing interline agreements with other carriers, just as LME had done with ExpressLink. “Each of us felt something was missing in our old relationships,” Martin says. “We all wanted to build something new – to design a new type of organization to service our customer base.”

Network strategy
In today’s market, carriers must offer more than basic transportation services. They need advanced information management capabilities and flexible operations to adjust quickly to meet customers’ special needs, Martin says.

Technology capability and operational flexibility adds tangible value to transportation, he says, and so from the start, Reliance Network partners decided to make data management and flexibility the cornerstones of the network in order to compete with traditional, national longhaul LTL carriers.

The regional carriers in the Reliance Network share many of the same challenges as national LTL carriers, including the high cost of operations and ongoing challenges to maintain market share, Martin says. The streamlined, compact and highly-efficient organizations of the Reliance Network carriers enable each company to make decisions quickly and enact those decisions, Martin says.

“In my opinion, the national carriers suffer from a lack of flexibility,” Martin says. “Sometimes it seems, from a national LTL perspective, they are trying to steer the Titanic.”

Martin says that with the Reliance Network, customers have the ability to deal with a flexible regional carrier that can customize some offerings – inside delivery, appointment scheduling, etc. – that sometimes are not available from other carriers.

Besides operational flexibility, the Reliance Network rivals the information capabilities of national LTL carriers, Martin says; all partners are working to ensure end-to-end shipment visibility, secure data management and accurate administrative processes. Shippers can receive one PRO number from the origin carrier that picks up their freight; this single PRO number can be used to track a shipment through the origin carrier’s website, even if the shipment is delivered by another carrier.

“We opened our computer systems to each partner member and to our customers to ensure the entire shipping process is seamless,” Martin says. In addition, customers have a single point of contact at the origin carrier for all customer service inquiries and problem resolution, he says.

From a technology standpoint, the Reliance Network has required significant programming changes to establish standardized processes that provide the capability for data to be seamless in transmission between carriers and between the customer and carrier. “Whatever particular data management issues that a customer is looking for, we have the flexibility to respond and customize data management packages for select accounts,” Martin says.

Standardizing service
Standardization has been central to integrating the operations and information systems of each partner carrier. One of the most complex tasks has been to create standard transit times for delivery, Martin says.

Within its own Midwest operating territory, LME offers customers guaranteed next-day and second-day delivery. To create standard transit times for shipments that extend beyond its own territory, LME worked closely with Reliance Network partners to establish and maintain a matrix of transit times for every ZIP code point in the United States and Canada.

The operations of each company coordinate daily linehaul activities to expedite the movement of freight among partner carriers, and transit times in the Reliance Network are generally one day better than what customers would experience from a national carrier, Martin says.
“As operations change and additional linehaul schedules are added, we have to keep the matrix current,” he says.

The Reliance Network also has established standards for handling cargo claims so as to avoid any confrontation with customers. The agreement is that the origin carrier accepts the cargo claim even if a partner carrier was responsible for the damage.

“We will resolve the claim within the network and share the cost of the claim on a 50-50 basis,” Martin says. “We will never have an issue that is not resolved.”

Pricing is another issue that partner carriers have settled. A lot of items such as accessorial charges were decided before the first load was moved in the Reliance Network, Martin says. In general, the carrier that originates a shipment is responsible for pricing and submitting rates to customers from origin to final destination. As is standard practice in the LTL industry, the destination carrier receives a revenue share for the portion of the shipment from the interchange point to the destination.

“There are minimal instances where we have found that we are not able to price competitively,” he says.

Benchmarking quality
When executives first met in Chicago to discuss the Reliance Network, they soon realized that being part of the group presented an opportunity to leverage the best practices of each partner carrier to benefit each company on an individual and collective basis, Martin says.

The executive group decided to create separate benchmarking groups, or subcommittees, for the areas of customer service, operations, claims and information technology. Each of these subcommittees would include one representative from each company. The groups would evaluate the best practices from each company on how to resolve an issue or to develop a process and procedures to manage these areas effectively for the Reliance Network.

Every two weeks, the groups submit their recommendations and options to the executive committee of the Reliance Network for review. The executive committee holds biweekly teleconferences and holds face-to-face meetings every quarter.

“That’s part of what makes us unique – the commitment at the executive and ownership level at each company to ensure we build a quality process that meets the requirements of our customer base today and provides for a continuous improvement process in order to meet the supply chain and logistical needs of our customer base for the future,” Martin says.

For example, the IT group developed the standards and procedures to open up the computer systems of each partner in order to extract shipment tracking information. Furthermore, the group developed the process to provide customers with real-time tracking by entering a single PRO number in the website of the origin carrier.

Meanwhile, the administrative group established a seamless freight claims procedure to eliminate the hassle of a customer having to deal with more than one company – the origin carrier – to file a claim, Martin says.

Coordinating sales
In addition to establishing benchmarking groups, each carrier named a sales and marketing executive to serve as a liaison to the Reliance Network. The sales and marketing liaisons are responsible for the day-to-day development of Reliance Network business.

LME’s Nancy Gorman leads the sales and development efforts for the Reliance Network. Her responsibilities include monitoring the changing demands of the marketplace and providing immediate feedback to the executive committee. Gorman works closely with her counterparts to create bimonthly strategic sales plans, and she also works directly with LME’s local and national sales representatives to cultivate new business opportunities and ensure that relationships operate smoothly.

“The spirit of cooperation is overwhelming,” Gorman says. “It is surprising in a lot of ways.” For example, Gorman says that the sales and marketing team for the Reliance Network regularly coordinates events at trade shows, makes joint sales calls and holds sales training and sales strategy meetings.

The team has put together a formal sales and marketing business plan for 2009 that contains specific strategies and tactics in order to drive market share growth for the network, Martin says.

“We have established specific revenue goals between each partner pair,” Martin says. “From that, we create sales incentives between carrier pairs to help us grow revenue. We treat the development and growth of the Reliance Network just as we would treat our planning process for growth within our regional networks.”

In 2008, the Reliance Network generated more than 200,000 additional shipments among all carriers. At least 50 percent of these shipments represent growth by adding new business, Martin says. For 2009, the planned growth is to double the number of shipments in the Reliance Network to 410,000.

Overall, Martin says that business is running at levels slightly below 2008 as a result of the general economy and overcapacity.

“I expect the remainder of the year to be soft, with revenue equal to or slightly below 2008,” he says. “Everyone is doing all they can to maintain current market share. Our focus is to retain current business and keep us positioned for growth. The bright spot is the Reliance Network and the additional opportunities that presents.”