Less-than-truckload (LTL) freight is in the midst of a boom. Market conditions are favorable for continued growth. The state of LTL freight offers a grand opportunity to overcome the significant obstacles created through economic growth, e-commerce, and global markets. Average weight per shipment is up for the sixth consecutive quarter, reports Jeff Berman of Logistics Management, and economic growth indicates continued diversion of freight to LTL from full truckload and even parcels to maintain capacity.
Throughout this series, we will take an in-depth look at the trends, benefits, and state of LTL freight, including:
- The current condition or state of LTL freight
- How LTL is advantageous during peak shipping seasons.
- The driving forces are contributing to higher LTL use in the remnants of 2018 and into 2019.
- Expected increases in LTL freight costs.
- Trends affecting LTL.
- Driver turnover and how LTL can reduce it.
- Dimensional pricing.
- Deficit ratings.
- Fuel Surcharges.
- Capacity crunch fears and possibilities.
- Regional LTL benefits.
- Last-mile and its role in LTL.
- LTL and intermodal shipping.
- E-commerce and its impact on LTL.
- How LTL enhances e-commerce growth.
- Building brand value through LTL.
- LTL shipping apps and their benefits.
- LTL transportation networks and new technologies.
- Digital LTL freight management now and in the future.
It’s a long road in understanding LTL markets, so let’s start by focusing on the overall state of LTL freight.
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The Overall State of LTL Freight Market Is Growing
Use of LTL freight increased in response to shortening supply chains, emphasis on smaller, lighter loads, tight capacity, and growth in e-commerce and the economy, says John D. Schultz of Supply Chain 24/7. Pricing compared to fall 2017 reveals a 10-percent average increase in LTL freight rates. LTL carriers realized additional leverage for profitability by tapping into the value of FT-designated freight. FT carriers also felt the need to free space for shippers, so they began a process of rejecting freight between 5,000 and 10,000 pounds. This was true even when the volume of such freight would have typically been sent via FT.
FT rates are expected to increase at least 5 percent by summer 2019. Higher demand on LTL carriers will bring renewed revenue, but it comes at a cost. LTL carriers endure one of the most significant losses in the shipping industry, and costs derive from talent (drivers and handlers), equipment, insurance, and technology.
LTL Freight Costs Influencers and the Impact of Deficit Rates
LTL freight is unlike any other type of shipping. It has a larger weight class than different OTR modes.
The range for LTL freight is from the cap of parcels, typically 150 pounds, to the minimum weights for FT (archetypally 10,000 pounds).
The difference is 9,850 pounds, and unfortunately, LTL carriers do not have a weight class for every pound. The average weight classes for LTL freight include:
- 100-500 pounds.
- 501-1,000 pounds.
- 1,001-2,000 pounds.
- 2,001-5,000 pounds.
- 5,001-10,000 pounds.
The classes simplify weight groups and define rates, but a problem exists. The resources used to move a 9,000-pound shipment versus a 5,005-pound shipment are significant. It’s almost double the weight, yet rates for higher volumes may be lower on a per-pound basis. As explained by Satish Jindel via JOC.com, these differences have led LTL carriers to mark-up weights in favor of giving clients a better freight rate, creating a deficit.
The deficit is in combination with higher talent costs. LTL drivers make approximately $20,000 more than FT drivers, and higher volumes and handling for LTL, like palletizing (consolidating) and shrink-wrapping freight, dramatically cut into profit margins. Volume is high, but profit margins are still menial. Understanding the relationship between costs and deficit rates will help encourage stability and growth of the LTL market.
Tips to Navigating the State of the Market to Manage Freight Spend
The first steps to managing higher LTL freight rates are simple. Shippers should:
- Create better trucker-carrier relationships.
- Re-evaluate customers brought into the business.
- Increase the number of carrier-shipper relationships used.
- Ensure freight is weighted correctly and scheduled, as well as ready to be loaded onto LTL trucks.
- Be specific in product descriptions, including weight, dimensions, density, value, and delivery window.
- Upgrade legacy systems, and integrate systems with carrier systems.
- Lower overhead expenses by attracting and retaining the right talent, as well as investing in the right, tech-driven systems.
- Rethink last-mile delivery activities.
The Future State of LTL Freight Belongs to Those Who…
Act appropriately and make LTL less stressful for managing by carriers and supply chain partners. With peak season upon the industry, the future of LTL freight rates may increase beyond the combined projections of 15 percent. Since LTL’s value lies in understanding how it can be useful in reducing freight spend, shippers should know how to plan for LTL peak season 2018. We’ll explore that concept further in the next post.