The Road to Optimizing LTL Carrier Relationships

As LTL carriers adapt and respond to changing market dynamics, many have had to make relatively significant rate increases—in the range of 5% to 6% in recent months. The good news is that there are ways for shippers to mitigate the impact of rate increases.

There’s no doubt the COVID-19 pandemic changed the way people work, live and shop. What’s becoming increasingly clear is that the trends accelerated in the last year—including the exponential surge in e-commerce and increasing adoption of omni-channel fulfillment—are here to stay.

In particular, the explosive demand for last-mile delivery will continue to remain higher than normal. Delivery speed at low- to no-cost to customers has become a necessity for shippers, which means a smart last-mile network is imperative.

With this in mind, strong relationships with less-than-truckload (LTL) carriers are now a key component in building that network. The increased expectations for last-mile delivery and more rapid placement of inventory has driven up demand for LTL services for delivery of relatively small, palletized freight.

However, LTL carriers have faced significant challenges over the past year:

Operation disruptions. LTL carriers were among the hardest hit in the freight transportation sector. According to a recent survey conducted by JOC, 41% of shipper respondents said that the pandemic caused significant disruption to their LTL shipping operations, while 39% reported moderate disruption.

The report also noted that the biggest issues with carrier performance revolved around on-time delivery and the pickup of shipments, in part due to LTL carrier capacity constraints. According to the report: “LTL carrier communication with shippers was flagged as a key issue with survey respondents citing problems with ‘overall response times’ to reports of ‘service problems,’ ‘slow problem resolution,’ and a ‘lack of proactive communication’ from carriers.”

Increased demand for products and services. The challenges in LTL carrier performance have come at a time when LTL customers are evolving their products and services, with most of these changes having an impact on pick-up and delivery locations or even handling requirements. These changes not only affect service levels, but can also put pressure on LTL pricing.

For example, the rise in “white-glove” delivery offerings have put LTL carriers under pressure to find drivers that can manage the physical demands with assembly and effectively communicate with the end customer in their home or business, especially when problems arise. Moreover, these specialized deliveries take more time, putting a heavy burden on LTL capacity as trucks stay idle while drivers are completing the on-premise delivery and assembly.

Changing networks for both LTL carriers and shippers. Another development that has stressed LTL carrier performance are the updates that shippers are making to their distribution networks to meet demands for direct-to-customer shipments—such as changing distribution networks to fulfill orders from multiple locations and moving inventory closer to end-customers. As a result, LTL carriers are being forced to change their own volume patterns and flow.

Overall market consolidation. On top of all these demands on LTL carriers, there’s an overall transformation and consolidation taking place in the LTL market at the same time. Major players are choosing to sell or spin-off their LTL offerings, while others are expanding their service regions and diversifying their portfolio of services. Shippers need to stay on top of the evolution of this market to take advantage of the more comprehensive LTL networks being built—and ultimately reap the benefits of LTL carriers’ efforts to improve efficiency, lower costs and enhance customer service.

As LTL carriers adapt and respond to these changing market dynamics, many of them have had to make relatively significant rate increases—in the range of 5% to 6% in recent months, which puts additional pressure on shippers. The good news is that there are ways for shippers to mitigate the impact of rate increases.

Three actions to solidify LTL relationships

We’ve outlined the following actions shippers can take to build and strengthen relationships with the right carriers for their needs.

1. Right-size your LTL carrier network and evaluate often. Shippers need to strengthen relationships with their existing LTL carriers, while also adding new ones to their network. The most important thing is to select carriers that fit each shipper’s individual network and goals, taking into consideration the various options from premium national and regional carriers to discount and direct options.

As we see additional transformation in the overall LTL market and changes in individual carrier networks, shippers need to continuously play matchmaker for their needs. By investing more time in understanding how carrier networks are changing and finding potential synergies with their own, shippers will find the right carriers on the right lanes, which will result in better service and better rates and ultimately cost savings.

2. Lock in contracts. Getting contracts with LTL carriers is critical for managing risk, maintaining your negotiated rates, and documenting expectations with your carriers. Where possible, it’s best to share expectations on volume and capacity. Laying out this groundwork will formalize the partnership and expectations on both sides.

It’s a documentation that both parties can reference when measuring performance, especially during times of disruption and limited capacity. Shippers need to remember that the contracts are agreed to at a point in time, and as their business and the market further evolves, they need to
regularly evaluate and make necessary updates.

3. Become a “carrier-friendly” shipper. There are many things shippers can do to deliver for their LTL carriers. Committing to a consistent schedule on lanes that match up with their carriers’ networks and ensuring shipments are turned in and loaded on time at the dock will build confidence with the carrier and help the shipper retain capacity.

Shippers need to know their LTL carriers’ networks and avoid going outside of it, which requires more handoffs and can ultimately delay transit times, increase risk of damage and increase costs.

With open communication lines, both shippers and LTL carriers can set clear goals for working together, proactively monitor their effectiveness against a continuously updated set of service level expectations, and manage shipment
volume expectations. Leveraging data and advanced analytics can also help to validate performance and identify opportunities for improvement.

Stay in alignment

In our work with shippers around the globe, we’ve seen firsthand how impactful these steps can be in strengthening LTL carrier relationships and managing risk for shippers. By evaluating and adjusting shipper networks to better mirror that of their carriers, we’ve seen decreases of almost 20% from those initial rates for shippers that reallocated incumbents to new lanes, which not only saves money, but also gives them increased confidence in their supplier performance.

Moreover, the alignment of shipper and carrier networks, combined with expanding planning windows to allow for more shipment consolidations, can also result in reduced carbon emissions and help companies meet climate change commitments.

The year 2020 challenged shippers to completely rethink their networks to best meet changing customer demands and respond to new market conditions. It’s also presenting an opportunity to reset and renew relationships with LTL carriers—and ultimately emerge with more resilient supply chains that can better respond and adapt to this ever-changing environment. 

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