LTL MARKET SENTIMENT & EMERGING TRENDS

LTL MARKET SENTIMENT & EMERGING TRENDS

LTL freight in the US has emerged from the volatility and uncertainty of the first quarter of this year to experience conditions that are the “best in a decade” in some cases. Moving into the fourth quarter of 2020, industry experts and carriers anticipate a return pre-pandemic shipping volumes, tightening capacity and rising rates. This recovery has occurred in parallel with two emerging market trends: pricing discipline and expansion.
Notably, an exhaustive review of freight trades (e.g., Freight Waves, Journal of Commerce), reports by industry researchers (e.g., TransportationInsight, Cass Information Systems), articles and podcasts by freight industry experts (e.g., Supply Chain 247, TranzAct Technologies), guidance from leading competitors in the US LTL freight market (e.g., Old Dominion, XPO Logistics) and the latest available materials from sources cited within the provided presentation (Morgan Stanley Freight Pulse Shipper Survey, FTR Transporation Intelligence) revealed that the preponderance of publicly available information regarding US freight is eitherdated or not specific to the LTL segment of the industry. As such, the desired data points for the LTL market were not always available in exactly the same format. However, this extensive research approach yielded clear, corroborated insights regarding both the current state and forecasted future of the US LTL market, as detailed further below.

LTL Volume

Regional

LTL Capacity

LTL Rates

PPI

LTL Cost Reduction Trend: Employee Furloughs / Salary Cuts

LTL COVID-19 Trend: Billing Disruption & Reorganization

  • In conjunction with staff layoffs, one of the “biggest changes” that LTL freight has experienced due to COVID-19 is the disruption and reorganization of billing operations, per industry researchers (e.g., TransportationInsight, Sunset Transportation) and freight media (e.g., Freight Waves).
  • Specifically, the combination of furloughs, layoffs and employee quarantines in both the US and overseas has “forced” many LTL carriers to consolidate their back office operations in the country.
  • Moreover, the volatility in staffing has resulted in the assignment of inexperienced workers to billing and processing roles, which has led to a “spike in billing errors” across LTL carriers.
  • Meanwhile, the long term implications of this billing disruption and reorganization remain unclear, as LTL carriers that shifted offshore billing operations to the US may keep these functions in the country to “ensure quality control” moving forward.

LTL Financial Trend: Consolidation

LTL Operating Cost Trend: Improved Operating Ratios

  • The return of LTL carriers to more profitable operating ratios was selected as a relatively recent industry trend related to operating costs based on the reporting of TransortationInsight and substantiating data.
  • Operating ratios, which measure expenses as a percentage of revenue, have historically served as a benchmark for LTL profitability, financial health and stability.
  • Although lower operating ratios are more profitable, LTL carriers relaxed their requirements during the early months of the pandemic and even operated at a loss (with ratios over 100) in order to maintain volume.
  • However, as early as this past July 2020, carriers are returning to operating ratios closer to the 90s.
  • TransportationInsight adds that as cost and capacity conditions continue to work in favor of LTL providers, this returning trend towards lower operating ratios will only increase.

LTL Sector of Interest Trend: Retail Goods

  • Retail has emerged as the new engine of national and regional LTL carriers amid the pandemic, according to a preponderance of industry experts (e.g., Logistics Management, Freight Waves, FTR).
  • Historically, “most LTL carriers” have ideally preferred a “50/50 split in revenue” from retail and manufacturing.
  • However, SJ Consulting Principal Satish Jindel reported that LTL carriers are handing “more retail shipments than ever before,” amid the drop-off and continued drag on manufacturing production in the country.
  • Ultimately, Mr. Jindel asserts that “LTL will perform better than truckload this year,” owing to LTL’s new focus on transporting retail goods as well as the surge in overall retail transportation needs due to e-commerce activity.
  • Corroborating this trend, industry leader Old Dominion reported in September 2020 that improving demand from the retail sector ultimately led to a year-over-year increase in LTL revenue per day for the month of August.

LTL Emerging Trend: Pricing Discipline

  • Pricing discipline was chosen as an emerging LTL trend based on the consistent reporting of this shift in behavior among LTL carriers by Logistics Management, Freight Waves and the Journal of Commerce.
  • Throughout March, June and August of this year, industry experts have highlighted LTL carriers’ “newfound pricing discipline” as a significant trend within the industry.
  • Perhaps the earliest indicator of this shift, Logistics Management reported that the LTL market absorbed the capacity from the closure of New England Motor Freight during the first quarter without “resorting to predatory pricing.”
  • Since then, Recon Logistics Vice President Curtis Garrett asserted that rate discipline has “remained in place throughout the industry” despite the pandemic, adding that improvements in freight scanning and weight dimensioners are enabling national and regional companies to become more strategic in their bidding.
  • Ultimately, Logistics Management asserted in August 2020 that LTL carriers’ continued trend towards pricing discipline is the core reason that the regional LTL sector has “fared better” than the larger truckload sector.

LTL Emerging Trend: Expansion

LTL MARKET SENTIMENT & EMERGING TRENDS
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