LTL rates seen zooming in excess of 5 percent this year, veteran truckers say

Less-than-truckload (LTL) shippers are facing what top trucking executives are calling a “new era” in LTL pricing because of a combination of pent-up demand, surging e-commerce deliveries and a tightening capacity due to increased government regulations and a shortage of qualified drives.

That means if you are an LTL shipper, you should brace for some of the steepest rate increases in a decade because of rising costs and sharply higher demand.

That’s the word from two veteran sages of the industry, New England Motor Freight Chairman Myron P. “Mike” Shevell and Darren Hawkins, who assumed the role of president and COO of YRC Worldwide on Jan. 1. YRC CEO James Welch is retiring July 31.

In a dire warning for LTL shippers, both say drastically higher rates are on the way. Core pricing (net of fuel surcharges) rose on average about 4 percent last year, according to analysts’ estimates and carriers’ financial reports. This year, shippers should brace for at least that much an increase, and perhaps much more.

“Our bigger shippers are cognizant of the environment,” Hawkins told LM. “The majority of our contracts are annual with a lot due the first of the year. Our larger customers are well aware of the capacity crunch.”

Hawkins oversees both the long-haul business of YRC Freight and shorter-haul regional and interregional networks of New Penn, Holland and Reddaway. Combined, they account for about $5 billion of the $36 billion LTL sector.

“I’ve been in this business for 60 years and the only time I’ve seen capacity shortages worse was during World War II,” says Shevell, chairman of the Shevell Group, parent of New England Motor Freight (NEMF), the leading LTL carrier in the Northeast. NEMF is celebrating its 100th anniversary this year, one of only a handful of trucking companies to reach that mark, and Shevell talks like he’d like to be around another 100 or so.

“Rates have to go up and not just 2-3-4-5 percent a year,” he said. “They have to go way up so we can move freight that has to move. Especially as the economy gets better, capacity is going to get even worse.

“Everybody (shippers) better prepare themselves because it’s a new era of doing business,” he told LM. “You’re not going to be able to beat up their trucking companies any longer because you won’t be able to have any trucks.”

And Shevell emphasized that new reality is not some forecast for 5-10 years down the road. “It’s reality,” he said. “It’s here now.” 

Spot rates hit an all-time record the last week of December, according to the closely watched DAT Trendlines. Load-to-truck ratios surged, setting a new all-time record-high of 12.2 loads per truck for vans, DAT said.

“Everybody follows those DAT Trendlines,” YRC’s Hawkins explained. “They’re telling us there’s a capacity crunch and we need to work together to make sure supply chains stay healthy. That means we have to make sure our resources are taken care of and we are compensated fairly.”

Shevell said LTL carriers face “many challenges ahead” to make a decent profit, and shippers have to realize that the pricing power has shifted toward the carries.

“People were using their power to beat up carriers with crazy pricing bids and in my opinion, those days are over,” he said. “Changes are coming fast and furious.”

Trucks that used to cost $60,000 just 10 years ago now cost north of $125,000 because of sophisticated electronics designed to reduce carbon emissions.

“The government forced this new equipment on us but the cost of running this equipment is horrendous,” Shevell said. “They’ve made it so complicated that if a truck breaks down, you used to send out a mechanic with a tool box. Now you send a tow truck for $1,000. And you have to dispatch another truck costing $120,000 to pull the load.”

Stricter enforcement of drivers hour of service is expected to decrease carrier productivity in the 4-6 percent range as cheaters will be forced to cut down the number of hours they drive.

“Drivers are going to lose pay,” Shevell predicted. “About 30 percent of drivers are ready to retire. You had a shortage to begin with, and then you have people retiring”

Shevell says the electronic logging devices cost his companies “several million to install and $500,000 annually” to maintain it.

“I’m a huge proponent of safety, but you have to get paid for it,” he said. “You don’t go into Wal-Mart and say I’m taking this TV home and I’m not paying for it. That’s what these companies want. It’s unbelievable.”

The best carriers are telling their customers to brace for this new era of pricing by collaboratively working together to create efficiencies where there once was bottlenecks.

Shevell’s advice for shippers is to “work with your carriers” to take costs out of their networks, reduce waiting time at docks and other facilities and realize truckers have to make a profit as well.

“Ninety-nine percent of our industry is just making pennies on the dollar as far as profits. “We are making huge investments in trucks, drivers and facilities.”