LTL Not Out Of The Woods, But Opportunities Burgeoning

The less-than-truckload industry has proved resilient amid a pandemic and a plethora of supply chain disruptions. However, Mark Redini, senior vice president of LTL pricing and solutions at Echo Global Logistics, urges the industry not to let its guard down just yet.

"LTL carriers quickly adapted to the changes and continued working over the course of the pandemic; they never really missed a beat," Redini said, applauding the industry's efforts but suggesting that there's more work to be done.

Redini reasons that he doesn't foresee an opportunity for the LTL industry to catch its breath before the end of the year, as demand appears to be ramping up once more heading into the summer months. He attributes this largely to an optimistic, vaccinated public increasing its spending, fueled in part by the latest stimulus payout.

"Although freight demand is typically slower in the first quarter, February 2021 wasn't slow at all," proclaimed Redini, who added that orders practically never let up in the back half of 2020, a trend that has steadily continued well into 2021.

For starters, winter storms early in the year rocked LTL networks across the country, particularly in the South, resulting in an unexpected, short-term capacity crunch. It's worth noting that international shipments have triggered headaches too as congestion at West Coast ports left many U.S. retailers with bottlenecked supply chains to reorganize. 

In addition to disruptions and delays, year-over-year outbound tender volumes have remained high since May. SONAR's Outbound Tender Volume Index (OTVI.USA) illustrates the massive increase in shipper requests for truckload capacity this year compared to previous periods dating back to 2018.

Lofty capacity and tender rejection rates typically signal an advantageous market for carriers. But COVID-19-related drawbacks in workforce participation have made it difficult to gain an edge, as unpredictable infections quarantined swaths of drivers and terminal employees, resulting in considerable backlogs.

Redini added that shippers should remain focused on maintaining capacity heading into the summer.

"Every shipper looks at three things: rates, service and capacity," Redini said. "At any point in time, one of those might out-prioritize the other two, but right now capacity has to be the No. 1 priority. Now is not the time to be replacing or terminating carriers; rather, now's the time to be protecting the capacity you have and, to the best of your ability, ensuring capacity for the rest of the year because that's clearly what's going to be paramount for the next seven months."

On the other hand, the top priority for carriers, according to Redini, should be personnel. He reasons that adding more equipment sounds like an easy solution, but many truck and trailer manufacturers are canceling orders as they can't keep up with demand. 

SONAR: OTVI.USA
Orange: 2018-2019 Green: 2019-2020 Blue: 2020-2021

"Similar to the airline industry, LTL networks are such that they can't go out and build new terminals easily or quickly," Redini said. "You can try running more freight in and out of terminals, but in order to do that, you'll need to add a linehaul, or a second run from one terminal to another. However, what's ultimately needed is bodies to drive and load those trucks."

He also urges shippers to anticipate an increase in vacation requests from drivers and terminal workers, many of whom haven't been able to secure meaningful and restful time off in over a year.

Despite its challenges, the changing dynamics of the freight landscape may in fact favor the LTL industry in the coming months because of its flexibility. 

"This is really conducive to an LTL-like environment because this means that shippers are going to want the option to ship and carry less of certain products as they're trying to service a more distributed population," said FreightWaves market expert and analyst Zach Strickland.

Strickland anticipates a long-run shift toward targeted inventory levels. As more Americans continue to move to the suburbs and outlying markets, as many have over the course of the pandemic, he explains that shippers may find it best to decentralize their inventory supplies instead of relying on truckload carriers to haul between large markets and just a handful of distribution centers.

"LTL networks are already set up for this because these networks aren't like giant facilities. They have cross-docks sitting out in a lot of these rural markets that are designed to pick up and deliver within a 50-mile radius of just about anywhere within their networks," Strickland said.

While the majority of freight movements occur between major markets like Los Angeles/Ontario, Atlanta, Dallas and Chicago, Strickland notes that truckload freight often struggles to establish networks beyond the larger markets.

SONAR: LCWTF.USA — Final reporting of LTL rates. 7 day moving average of daily median rate per 100 lbs. On a 42 day lag. LTL freight is far more contracted than purchased on the spot market. Strickland points to the rising rates depicted on the chart.

"It's not guaranteed capacity; that's why truckload has flimsy contracts. With LTL, it's guaranteed capacity," Strickland said, describing LTL as having "very sticky" contracts, without a lot of spot market activity. "You can place an order and they'll pick it up. LTL carriers don't turn it down or decide to accept it — at least electronically like truckload carriers do. They have to commit to servicing these areas because that's how their network is set up."

COVID-19's macroeconomic side effects are on everyone's lips, but some changes may be more immediately felt in our daily routines.

Redini goes so far as to say that some workforce precautions that were initially temporary may become permanent. He points to no-touch delivery receipts as an example of an intuitive precaution that could do away with clipboard interactions altogether.    

"It'll probably be a good move because deliveries are a time crunch," Redini said. "If you think about it, once the driver backs the truck in, he or she has to get out, enter the building and find the person responsible for signing — that's not a time-value addition."

On a broader level, Redini says the LTL industry may do away largely with in-person visits and embrace telecommunication as its main form of conducting business, more so on the sales side.

"I think LTL carriers are trying to reimagine their strategies, asking themselves, ‘Should we continue having our salespeople drive around meeting with smaller shippers, or should we be doing more video calls?'" Redini said. "Those are just some examples of age-old processes that quickly went away, and in my opinion, might indeed not return."

Click for more FreightWaves content by Jack Glenn.

Image Sourced from Pixabay