If the LTL bull market of 2021 is any indication of the growing importance of less-than-truckload (LTL) shipping, 2022 could bring more good fortune for carriers operating in this segment.
Early in the year, shippers were warned to “brace for stiff rate increases” due to “tight capacity, lack of drivers, new market concentration and mounting COVID-related demands.”
Writing for Logistics Management, transportation journalist John D. Schulz summed up his prediction like this: “Unlike past years, 2021 will likely be one where a fortuitous combination of pricing discipline and high barriers to entry meet an industry determined not to waste what’s likely a once-a-decade pricing conundrum for shippers fueled by growth in e-commerce.”
And Schulz was on the mark, noting in a December article that compared to a 2020 decline of 1.1%, LTL freight tonnage was up almost 8% in 2021 and LTL rate hikes were some of the most visible.
In 2022, experts predict more of the same. This may be especially true for companies in the Southern and Southwestern regions, since long-time Waco, Texas-based LTL carrier Central Freight Lines (CFL) recently closed up shop—a move that may further tighten already-tight capacity and potentially bump LTL rates even higher there.
How is LTL different?
As the name implies, LTL freight only occupies a portion of the trailer—as opposed to full truckload (TL) freight. It weighs less than 20,000 pounds and is typically shipped on pallets. The LTL model consists of a hub-and-spoke framework in which terminals are placed in key locations to provide direct services to specific areas.
Additionally, LTL freight is assessed according to the National Motor Freight Classification® (NMFC®) system, which the National Motor Freight Traffic Association (NMFTA) describes like this: “The National Motor Freight Classification® (NMFC®) is a standard that provides a comparison of commodities moving in interstate, intrastate and foreign commerce. …
Commodities are grouped into one of 18 classes—from a low of class 50 to a high of class 500—based on an evaluation of four transportation characteristics: density, handling, stowability and liability. Together, these characteristics establish a commodity’s ‘transportability.’ By analyzing commodities on the basis of the four transportation characteristics and ONLY on the basis of those characteristics, the NMFC provides both carriers and shippers with a standard by which to begin negotiations and greatly simplifies the comparative evaluation of the many thousands of products moving in today’s competitive marketplace.”
Factors like these can make LTL more complex for logistics professionals, as does the need to deal with various locations for pick-up and delivery—plus any specialty services that may be required.
This explainer video offers a brief overview of LTL.
COVID, E-Commerce, and the LTL Boom
Although the growth of e-commerce wasn’t anything new, the arrival of COVID-19 and its isolating effects led to a surge in online purchases from American consumers, creating a whole host of challenging dynamics that had a crippling effect on the supply chain.
But the e-commerce boom also did something else: it played right into the hands of LTL carriers uniquely equipped to handle this particular type of supply chain scenario.
In an effort to survive the unprecedented dynamics of COVID, one way shippers scrambled to survive was by meeting the needs of demanding consumers who had become accustomed to attractive offerings from competitors such as free shipping and 2-day, next-day, and even same-day delivery.
And with all those consumers stuck at home, they were placing orders more often, which meant that shippers were sending smaller orders out more frequently—a perfect fit for the increasingly pricey LTL segment.
Citing various experts, S.L. Fuller of Supply Chain Dive writes that in such an environment, supply chain dynamics increasingly revolve around e-commerce and LTL shipments: “If long-haul trucking is king in middle mile, the LTL sector has made a particularly quick ascent to the throne,” and is perhaps “the largest beneficiary of e-commerce growth.”
Despite the challenges LTL might present for shippers in terms of costs and logistical complexities, Fuller also referred to LTL as a potential “democratizer,” citing the perspective of Jonathan Kletzel, transportation and logistics partner at PwC, who told Supply Chain Dive, “I see LTL as being a critical enabler of local fulfillment for companies that want to compete with some of the national brands. …To be successful, they will need to serve local fulfillment through more direct, smaller loads to be able to better manage local inventory — especially for slower moving SKUs.”
Another enabler of the LTL boom? A boost in overflow from TL freight.
LTL Strategies for Shippers
Commenting for Freightwaves about CFL’s demise, long-time LTL consultant Scooter Sayers underscored how important it is for shippers to have a comprehensive understanding of the characteristics of their freight: “If all [shippers] can do is give carriers a list of ZIP codes and shipment weights, they will either pass [on the business] or build in a huge risk factor” that will likely translate into higher rates.
Sayers also said that level of understanding about freight profiles may provide some negotiating power, too: “One way shippers can gain back some pricing leverage, either when changing carriers or negotiating with their current carrier, is knowing their freight and using that knowledge to their advantage.”
As the e-commerce boom becomes less of an anomaly and more of a norm, other experts underscore the need for shippers to solidify their relationships with LTL carriers. Accenture’s Sara Banks and Fran Barker recommend the following three steps to do it (please see the post for full descriptions of each):
Right-size your LTL carrier network and evaluate often—by strengthening existing relationships and expanding networks with new ones: “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.”
Lock in contracts—to manage risk, maintain negotiated rates, and document expectations: “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.”
Become a “carrier-friendly” shipper—who makes life easier for LTL partners: “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.”
Banks and Barker say that their global work with shippers has demonstrated that taking steps such as these can go a long way to both strengthening relationships with LTL carriers and reducing the risks shippers face. And from a cost standpoint, “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.”