LTL sector appears to be on solid footing as the mid-year point approaches

As the first half of 2014 is nearly complete, the less-than-truckload (LTL) sector appears to have a fair amount of positives working in its favor, including better-than-expected volumes and decent pricing, among others.

Stifel Nicolaus analyst David Ross outlined the current state of LTL affairs in a research note issued last week. Ross cited how publicly-traded LTL carriers Old Dominion Freight Line and Saia have reported strong annual tonnage gains through May and also observed that private carriers have also indicated similar sentiment, while adding they could be hauling more freight were it not for lack of available drivers (a constant theme to be sure these days).

Ross was also quick to point out that with the LTL market less than ten percent of the truckload market, a modest tightening in truckload capacity, which he said is occurring, translates into some truckload shipments being absorbed by LTL carriers.

Other notable observations from Ross included how LTL tonnage in the first quarter were up 4.3 percent annually even though the winter had a harsh impact on freight transportation productivity, and he added that second quarter tonnage is expected to be healthy, due to decent manufacturing activity, as evidenced in data from the Institute for Supply Management, pent-up demand from the first quarter, pre-shipping in advance of a possible West Coast port labor shutdown and market share gains as well.

And last week’s shuttering of New Century Transportation and last year’s Vitran and Central Transport merger also figure to increase LTL tonnage for public LTL carriers, and benefit market pricing, too.

Ross was not alone in observing the current strength of the LTL sector. Satish Jindel, president of Pittsburgh-based SJ Consulting, explained to me that LTL volumes are solid and seeing increases in tandem with pricing that is holding due to the fact that a good balance of LTL capacity remains tight in many cases.

“Carriers currently have a good mix of shipment and capacity balance in order to reap the profits and reinvest into the business,” Jindel told me. 

During our conversation, Jindel also pointed out that freight brokerages continue to create value in LTL, explaining that it is not only the “quality of customer” for brokers but also quality of freight, or the value proposition in terms of technology to secure and broker loads that enable the, to have a decent margin.

As previously reported in this space, there has been a significant influx of truck brokerage players that are active in the LTL market in recent years, which is reducing margins for carriers that are “struggling for pennies.” What’s more, industry estimates suggest it is fair to estimate that brokers are selling 25 percent of total LTL loads today and that figure is rising.

All told, given the slow pace of the economic recovery, it stands to reason the LTL sector is on strong footing for 2014. While things can––and often do––change quickly, industry stakeholders indicate that there is more than enough freight to go around, with carriers able to secure decent pricing, both two things that were missing in spades not all that long ago.