LTL market is solid but shippers need to watch out for freight ‘turndowns’

There is another challenge in the LTL sector that directly impacts LTL shippers not getting what they need from carriers, with carriers widening embargoes on shipments in certain parts of the United States.

By ·

When assessing the current state of the less-than-truckload (LTL) market, it is not hard to see that there are a lot of things working in its favor, whether it be favorable pricing levels, especially compared to the same period a year ago, as well as an increase in freight activity towards the end of the first half of the year, too.

In a recent research note previewing second quarter earnings, Stifel analyst Dave Ross took a look back at the first quarter. Ross noted that weight per shipment was up throughout the LTL sector for the sixth straight quarter, which, in turn, led to the highest average shipment size going back to 2014.

“This is due to the stronger industrial economy and the heavier-weight shipments that are coming from the [truckload] capacity crunch,” he wrote. 

Addressing pricing, Ross observed that on a year-to-date basis, LTL revenues are up 10% or more for LTL carriers through either volume or yield gains, coupled with pricing up in the 4%-to-7% range.

While pricing and strong economic fundamentals lend itself to good financials for carriers, the LTL sector is not without its challenges, though. To be sure, like on the truckload side, driver availability is an issue, with Ross calling it “as challenging as ever for LTL carriers.”

What’s more, there is another challenge in the LTL sector that directly impacts LTL shippers not getting what they need from carriers, with carriers widening embargoes on shipments in certain parts of the United States.

This was clearly spelled out by Mike Regan, chief relationship officer for TranzAct Technologies in one of his recent “2:00 Warning” updates.

“For all intents and purposes, LTL carrier networks are completely saturated and operating at full capacity,” said Regan. “What does this mean? Well, in the words of one LTL carrier, it impacts its ability to respond to what it used to call the buffer issues. When there is a sudden spike in demand or a sudden change requiring extra trucks, they simply don’t have the capacity to provide those trucks to shippers.”

Regan said these developments have led to some things that the LTL sector has never seen, adding that the volume and number of freight embargoing occurring is “stunning,” regardless of region.

“We are seeing carriers tell shippers that ‘we simply cannot handle the extra volume,’” said Regan, also noting that some carriers are suspending service guarantees, saying that they can no longer guarantee a consistent level of service throughout their networks. [Shippers] can react and say that is not right or fair, but that is the reality.”

On an anecdotal basis, Regan used a customer with roughly $65-to-$70 million in annual LTL spend as an example.

“This customer is opening up a facility in Washington and asked us for some carriers to use for this new facility,” Regan said in an interview. “We gave them four carriers, and he said ‘bad news, Mike, three of the four we are already doing business with and they told us they will not accept any additional volume in the network right now.’ Think about that. Carriers are telling shippers they will not accept any more freight above their normal run rate, which has never happened, save for the Brownout of 1997, when FedEx said, ‘look, we are not taking on any additional UPS business.’”

Regan cited a few different factors that are driving this current LTL turmoil.

One is a stronger economy. With second quarter GDP expected to come in at least 2.5%, he said that is sustainable for the LTL sector. But were GDP to hit 4%, he said that could lead to a more dire environment as the current freight network is not equipped to sustain GDP growth at that level.

“You are also seeing shippers willing to take trucks they used to deploy for truckload runs now breaking those down via LTL, because they cannot find trucks,” he explained. “So carriers are now getting inundated with those types of requests, which is why they are going to have to adjust their pricing as they don’t want to handle that freight. This is what I call the precision trucking initiative, which is creating all sorts of demands on networks that people have not fleshed out yet.”

Other issues related to these LTL freight turndowns, said Regan, could arise from must-arrive-by-date and OTIF (on-time and in-full) requirements by large retail shippers like Wal-Mart and others.

“Many large LTL carriers are sending the market a signal and if you are not picking up on that signal, you will be in trouble,” said Regan.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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!

Article Topics

Capacity · Less-Than-Truckload · LTL · Pricing · Rates · All Topics
Latest Whitepaper
How to Minimize Costs with Enterprise Labeling
The right labeling solution will allow companies to stand up to their everyday challenges and add value.
Download Today!
From the February 2019 Logistics Management Magazine Issue
The editorial staff of Logistics Management has focused much of this issue on helping global shippers better manage what they can control. And, we shed some light on the technology and partnership options that savvy shippers are putting to work to help mitigate risk and dull some of the headaches.
State of Global Logistics: Time for a reality check
Preview some of the innovations you will see at ProMat 2019
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Freight Tech: Separating Need from Noise
In this webinar experts will share practical advice for selecting solutions that provide quick time-to-value while readying your supply chain for long-term success.
Register Today!
EDITORS' PICKS
Ember: Finding the perfect temperature
Inventor of the world’s first temperature-controlled mugs turns to a single third-party logistics...
2019 Rate Outlook: Pressure Builds
In 2019, the world economy will enter a third straight year of broad-based growth, but many...

2019 Transportation Management Systems (TMS) Market Update: Keeping pace with the times
The transportation management systems market is growing right along with the number of challenges...
The Logistics News that Shaped 2018
Every year at this time, group news editor Jeff Berman combs through the mountain of news that was...