2014 State of Logistics: Less-than-truckload’s welcomed rebound

By John D. Schulz, Contributing Editor
July 01, 2014 - LM Editorial

The $35 billion less-than-truckload (LTL) market, benefitting from a rebound in the U.S. industrial sector, is enjoying a renaissance after five lean years. And leading LTL executives say it’s about time.

Chuck Hammel, president of regional LTL Pitt Ohio, labels the current overall market as “good, not great,” adding that “good” is surely a welcome change from what it has been since 2009. “We’re seeing solid tonnage growth from existing customers, and we’re asking for and getting fair increases on the rates,” he said. “Capacity is running between balanced and tight.”

LTL carriers enjoy a distinct market concentration advantage over the highly fragmented truckload sector. The top five LTL carriers by revenue (FedEx Freight, YRC regional and long-haul, Con-way, UPS Freight, and Old Dominion Freight Line) have a 55 percent market share. By contrast, the top five carriers in the non-union TL market have less than 5 percent market share of that $300 billion market.

This differentiation is due to the fact that LTL carriers face significant barriers to entry. In order to operate a typical LTL hub-and-spoke network operation, it takes hundreds of millions of capital costs to buy real estate, build terminals, and staff those facilities around the clock. By contrast, TL carriers operate largely point-to-point without much in terms of brick-and-mortar costs.

Statistics provided by SJ Consulting, a research firm that closely tracks the sector, show LTL’s renaissance. As the accompanying chart shows, LTL demand is accelerating and pricing has been gaining momentum over the past four quarters.

In the first quarter of this year, LTL tonnage rose by a robust 4.9 percent year over year. That followed 0.7 percent, 2.9 percent, and 4.8 percent year-over-year increases in tonnage for the second, third, and fourth quarters of 2013.
Not surprisingly, this tonnage surge has resulted in solid LTL revenue gains. In the first quarter of this year, LTL revenue per hundredweight (excluding fuel surcharges) rose 2.5 percent. This followed similar gains of 1.4 percent, 1.4 percent, and 1.5 percent in the second, third, and fourth quarters of last year.

“LTL pricing is fair,” said Satish Jindel, principal of SJ Consulting. “It will vary by which part of country and which lanes, with carriers in the Midwest and Mid-Atlantic seeing good improvements.”

Several factors may be responsible for those geographic gains. The auto industry’s rebound is helping carriers in the upper Midwest keep their trucks filled. The Mid-Atlantic is gaining strength due to pent-up demand after a brutal winter caused first quarter freight levels to drop. And keep in mind that U.S. operations of Toronto-based Vitran Express are basically being closed out and absorbed by Central Transport, causing better results for other U.S. LTL carriers in those regions once served by Vitran’s units.

Most LTL carriers are routinely seeking and getting 3 percent to 4 percent increases on some lanes of contract traffic. Most carriers announced a general rate increase in the 5.5 percent range the first of the year, and there is some talk about a second GRI later this year.

But increasingly, carriers are making rate adjustments on a customer-by-customer basis. Those shippers with the best freight characteristics—little waiting at the docks, ease of entry/exit, accurate weight shipments—are getting the best consideration when it comes to mitigating higher costs.

Most LTL fleets are reporting difficulty in adding quality drivers, especially in line-haul operations. In that area, the LTL industry is competing with the larger, mostly non-union, long-haul TL carriers that have been coping with a driver shortage for years.

The bottom line for shippers is to expect pass-through rate increases in the LTL industry to help cover for the higher costs in recruiting and obtaining qualified long-haul drivers.

 



About the Author

image
John D. Schulz
Contributing Editor

John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. He is known to own the fattest Rolodex in the business, and is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis. This wise Washington owl has performed and produced at some of the highest levels of journalism in his 40-year career, mostly as a Washington newsman.


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Information abounds about the growing trend of electric lift trucks and the advantages and disadvantages of the electric solution. Amid all of the information from so many sources, what's the truth about electric lift trucks? This complimentary white paper breaks through the clutter to review why electric lift trucks are gaining in popularity and also to review their challenges, as well as their economic and environmental benefits.

Three weeks after initiating a coordinated series of slowdowns that have mired the major West Coast ports of Tacoma, Seattle, Oakland, Los Angeles and Long Beach, the ILWU has pushed away from the bargaining table.

DHL has released the third edition of its Global Connectedness Index (GCI), a detailed analysis of the state of globalization around the world.

The truck driver shortage is worsening, threatening the trucking industry’s ability to serve the nation’s supply chains. The shortage will almost certainly cause fleets’ costs to increase and shippers’ rate to continue to rise.

The Agriculture Transportation Coalition has asked the Administration to bring in a federal mediator to help resolve the negotiations, and if a strike or lockout occurs, the AgTC advocates the rarely-invoked Taft-Hartley Act.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA