Logistics Management Group News Editor Jeff Berman recently spoke with Kait Parker, VP of LTL Operations at Coyote Logistics, a Chicago-based transportation and logistics management and truckload freight brokerage services, and a subsidiary of freight transportation and logistics services bellwether UPS. Parker provided Berman with an overview of the less-than-truckload (LTL) market, from a few different perspectives, including rates, planning, and service, among others. Their conversation follows below.
Logistics Management (LM): How would you describe the state of the LTL market on a year-to-date basis?
Parker: To date, and, especially, this year, all things considered, our relative past is not considered normal. Post-pandemic, we have been in this crazy space. I would say things are a bit softer, in terms of how we are feeling about things year-to-date than compared to the last two years during the pandemic. But things are not soft enough to the point where carriers are feeling selective, if you will, in the LTL space. I think people are being cautious.
LM: In what ways do you think people are being cautious?
Parker: I think they are going to be careful to not make any sweeping changes since we have gotten out of two years of craziness—but cautiously optimistic in a softer sense.
LM: With LTL carriers having a fair amount of pricing power at the moment, as evidenced by first quarter earnings for the publicly-traded LTL carriers’ profits, where does that leave things for shippers? How can they work more efficiently and effectively to mitigate this situation?
Parker: I think it is such a relevant question to what we are hearing right now. I was recently talking to a colleague, and the topic of making your admin at the docks and what you are doing to keep the LTL carriers moving—by means of efficient loading and timely appointments—have never been more top of mind. This is like Supply Chain 101 stuff we have been talking about with our customers for years. But I think they are listening and are bringing the idea on topic to the forefront in a way that we have not seen historically now that there is a bit of breathing room to get serious about these topics. Anytime you have a pause or don’t feel like there is a 911 or feet to the fire situation, you have to use it to talk about these types of topics. If you are in the middle of making a warehouse decision, for a shipper location or a vendor, if there is anything you can do to sweeten the deal and be in lockstep, proactively speaking, with the LTL’s networks, now is the time. The reason for that is we just don’t know what is going to happen with e-commerce demand, so why not make the most well-educated decision possible right now to hopefully get better profitability and productivity?
LM: In our recent study, 40% of respondents expect double-digit increases, with 25% expecting a 10% to 14% increase and 13% expecting an increase of 15% or more. Do you think this represents a new normal, of sorts, in terms of LTL pricing dynamics?
Parker: That all sounds spot-on. We have been setting the table and that narrative in front of, especially, our very large shippers [customers] for the last, say 2.5 years, and I think they have come around to that concept, in terms of it being the new normal. Right now, on a year-to-date basis, it feels like it will flatten a little bit for this quarter and next quarter. We have been along for the ride over these last two years and bracing ourselves for 2%-to-3% incremental increases, and I think it sounds and feels like it is going to flatten. That is being cautiously optimistic. I don’t think any carriers are going to hold [rates] stagnant or decrease, by any means, just maybe not as quite as large of a swing.
LM: What do you think are the biggest factors driving LTL pricing gains? There are a bunch out there, including: shifting demand levels, inflation, and the driver situation, among others.
Parker: It speaks to there being countless reasons for shippers to be prepared. There is modal convergence, in both ways, that have to do with shortages. That is still very active and live. It is not that we are out of the woods, when it comes to that, especially because e-commerce and all of the buying and purchasing behaviors of the nation have slowed down, not to be dramatic. We are still dealing with everyone’s supply chain being caught up on bringing in inbound on the right schedule, and if that is not right on and we are overstocking the warehouse, that trickles on down the line to carriers having to be asked to do more through things like just-in-time freight, or managing overages or high demand. You have to be prepared in both directions, which makes it really difficult.
LM: What are your shipper customers telling you are the biggest challenges for managing LTL capacity?
Parker: It comes down to data being king and proactive approaches. So, what is working in a collaborative conversation with them, which, again, can be really difficult. We find our sweet spot in having conversations with customers about taking a hard look. We are still seeing a lot of customers that historically have not [thoroughly] explored working with 3PLs in this space, and we are now seeing a lot of first-timers open the table for RFPs for us to participate or getting serious again about a collaborative approach lessening overhead for them through us by improved technology gains. APIs, for example, are always top of mind. The current state of technology, as well as everything going on in the world around shippers, has people coming to the table and ready to discuss these things in a way that we just have not seen historically.
LM: So, is it fair to say that represents a situation that bodes well for a company like Coyote?
Parker: Yes, it does, and it really bleeds into the carriers. In the LTL space, you have some big and established names, with some that are heavier legacy names that have invested into the tech side, but I would say that things have kind of escalated there. The ones that were kind of teetering or behind the ball historically cannot about talking about APIs anymore. They are constantly talking to Dave Bush, our VP of LTL Procurement, about those things. We like to think of ourselves as leading that space, so we lead it a lot and push them and share what their counterparts are doing in hope of moving the needle. It creates less overhead for us and less overhead for them, making it more attractive for them to get in front of customers and vice versa. It is good for all of us, which is why collaboration is king. This is beneficial for both shippers and carriers, because if we are connected, because of the need for reconciling at the end, regarding pay terms, discrepancies, and the changes in the bill of lading as well. It is really the [key parts] of the operations for an LTL shipment. All of that is a challenging space that I think our customers, especially on the 3PL side, have not really had to care about. And that is one of the reasons for us to be flexible, as we really need to be. If we are just turning around and giving that information to carriers, it is, again, a way for all of us to get connected and to also help them almost help themselves by taking a deep look at those types of things.
LM: How do you view the impact of inflation and diesel prices on the LTL market?
Parker: For our customers, this goes back to if they are in a position to talk about warehouse vendor providers, locations, shipping patterns, and consolidation, that always helps, and it also depends on their inventory levels, and where they are shipping and how quickly and when they need to get it out. And, if they have more time, we can talk about conversions. If they have more density, we can talk about some pool distribution models and things like that, because you are going to have to cut some costs somewhere else, because this is going to be a pass through like everything else and getting under the hood to see if you have any flexibility by means of timing or locations. With inflation, it is like we are almost used to it and it has made the conversation about all of the things carriers would prefer by means of all of this. What I touched on for what shippers can do in advance, I mean those are the only ways to work on your profitability and productivity because all of this is so inevitable and so recent…but it also feels like it has been happening forever over the last 2.5 years here. It is not going away.
LM: How do you view current LTL service levels?
Parker: It is an interesting topic and goes back to carriers being selective again, with many of them not needing to take anything that they don’t want or need or does not fit quite right. Maybe it has had a little bit of a positive impact in that regard of being able to service [shippers] a little better in their sweet spots, which is maybe an unintended positive impact of things that have gone down. And with the technology gains and the heightened awareness in the 3PL space and shippers having to get serious about LTL and having those conversations, too, I would like to think that all of our joint collaborative efforts are improving things additionally there.
LM: How do you view the intersection of e-commerce and the LTL sector, given that LTLs are typically more associated with the manufacturing side?
Parker: One example I am hearing from customers has to do with managing the inbound tighter, which translates to some higher requests out of the carriers to be on a tighter schedule, which does not always work right or well in the LTL space. So, it takes a concerted effort to have that type of communication and to plan for it. It is not just something that can happen overnight. We have had some conversations and have seen some positives, in terms of having a planning process, and getting more serious about SOP and what to do when these situations arise. This is a perfect live playout of a case study, where if a shipper has too much inventory with retailers not hitting what they thought they would, then there is less space. What that means is the shipper cannot bring as big of a shipment in by means of truckload and intermodal and will lean on that LTL provider, which you cannot really do quickly.
LM: With the pairing of Peak Season coming soon and the looming glut of inbound freight coming from China, should there be significant pull-forward efforts by your customers, what does that mean, in terms of carrier networks being ready and primed to stay on top of what could be muddled conditions?
Parker: I think it is likely that there will be delays that will continue because of demand levels. You cannot make up LTL capacity out of thin air. There are so many of them, and it takes a lot of concerted efforts and planning to necessarily change things in that space. That also leads into delays and also into selective conversations about what is working for customers. If you need to prioritize that, then you need to get smart and have the data at the forefront of the conversation to work with them.