Less Than Truckload 2022 Study: Trials and Tribulations of Rising Tariffs

The past two years have been anything but normal, and considering the state of the LTL market, that fact couldn’t be more true for shippers and carriers.

And while things appear to be improving on the pandemic front, a host of issues persist in the LTL sector, including inflation, ongoing capacity issues and rising diesel prices. Now, that’s not to say the LTL market is in trouble, far from it.

In fact, on the carrier side, many are reporting record profits as the pricing power now rests comfortably in their hands. On the other hand, shippers bear the brunt of all these challenges in order to serve customers effectively and efficiently while keeping an eye on costs.

These are among the many takeaways from the Logistics Management (LM) “First Annual LTL Study” that was recently conducted for LM by Peerless Research Group (PRG). The study data was based on feedback from more than 180 buyers of logistics and freight forwarding services. Here’s what we found.

Yes, prices are increasing

One of the main findings of the study focused on LTL contract prices, with 78% of respondents noting that they expect prices to increase from 2022 to 2023, 19% expecting them to increase. remain the same with only 3% expecting a decline.

Additionally, nearly 40% of respondents expect double-digit increases, with 25% expecting an increase of 10% to 14% and 13% expecting an increase of 15% or more. The largest group of respondents (42%) expect an increase in the range of 5% to 9%, and 12% expect an increase of less than 5%, while 8% indicated that they didn’t know or weren’t sure.

What best describes your LTL contract rates from 2021 to 2022?

Source: Peerless Research Group

The reasons cited for the expected LTL rate gains were numerous and understandable, including demand exceeding capacity; fuel increases and fuel surcharges; shortage of labor and drivers; inflation; capital and equipment expenditure; capacity crunch driven by e-commerce; supply chain delays and bottlenecks; rate increases implemented by major national LTL carriers that were followed by similar efforts by regional carriers; and increased overhead for LTL carriers.

How much have your LTL contract prices increased from 2021 to 2022*?

Source: Peerless Research Group

Management capacity

When it comes to securing LTL capacity, 50% of respondents said it was “sometimes a problem”, while 42% said it was “rarely or never a problem” and 8% said that they “usually or always had problems”.

Survey respondents outlined a number of factors related to security capacity issues, including operator availability; unauthorized incidental charges; carriers miss same-day pickups and postpone them to the next day; delays in scheduled delivery times and dates; shortages and delays of drivers and labor at terminals; high demand levels; and difficulties in finding carriers to support surge capacity, which necessitates reviewing spot quotes.

How do you expect your LTL contract prices to evolve from 2022 to 2023?

Source: Peerless Research Group

When it comes to best practices and initiatives related to securing LTL capacity, feedback from respondents ranged from the basic – including booking where possible and better forecasting – to the more sophisticated, including pushing for shippers to do things like implement grassroots carrier programs; organize needs earlier in the day; drop off trailers with multiple carriers; partnering with brokers as well as asset-based providers; and share lane forecasts and requests with partner carriers.

How much do you think rates will increase from 2022 to 2023*?

Source: Peerless Research Group (PRG)

While many LTL shippers said they work with carriers on a contract basis, spot LTL market activity is more active than many would assume, with 37% of respondents indicating that they secure shipments and capacity via the spot market. As to the extent to which, however, there is some variation, with 36% saying it is less than once a week, 26% noting it is once a month or more, and 10% saying it ranges from two weeks to less than a month.

Partnerships with carriers were also a focus of the study, with 58% of respondents saying they had taken steps to partner with LTL carriers, with the remaining 42% saying they had not.

The benefits of these partnerships include things like better pricing, greater visibility, and more success in securing capacity. Other positive elements of partnering with carriers mentioned by respondents were reliable solutions when problems arise; better pick-up times; better communication; a better understanding of shippers’ needs; and smoother planning.

Market Outlook

LTL industry stakeholders presented their respective analyzes on the current state of the LTL market from their unique perspectives.

Mike Regan, co-founder and director of relationships at freight audit and payment firm TranzAct Technologies, says there are a few concurrent themes that underscore the realities of what’s happening in the LTL market.

What is your average journey length?

Source: Peerless Research Group (PRG)

Calling the current state of the market “the new normal,” Regan says it comes with the caveat that the pandemic didn’t trigger the situation. Instead, he says the environment is based on LTL carriers beginning to understand the power of scarcity. The specific reason, he says, is that in an environment where scarcity or constrained capacity is a reality, carriers have the luxury of telling shippers that they will no longer absorb the costs of shipper customer inefficiencies.

Going further, Regan says that in a recent conversation with the CEO of a mid-to-large carrier about being a shipper of choice, he explained how TranzAct conducts an internal review of carrier performance. , so it says, but not enough shippers are participating.

What best describes your current experiences securing LTL capacity?

Source: Peerless Research Group (PRG)

“He said it’s always good if the shipper has time to give the carriers a punch card, but they don’t have time for the carrier to give them their punch card,” Regan says. “In an environment where we talk about transparency and mutual commitment, I thought it was
a telltale sign.

Reviewing the economics as it relates to the LTL market, Dave Ross, Executive Vice President of Roadrunner Freight, a national LTL service provider based in Downers Grove, Illinois, observes that the sweet spot for LTL, the industrial economy, held up stronger than retail sectors, which are more reflective of truck freight activity. Additionally, he says that even with some slowdown in manufacturing lately, it’s still likely to be stronger than retail, with lean inventories serving as a tailwind.

Do you secure loads/capacity through the spot market? And how long is your current contract(s) in the spot market?

Source: Peerless Research Group (PRG)

“The structure put in place in LTL is better than truckloading because there are just fewer players and they have more price discipline – and their costs go up,” says Ross. “Labour, which is the main cost element of LTL, is under significant pressure. This is where most pricing goes for LTL carriers. Real estate and equipment are also becoming more expensive, as is fuel.

With nearly 40% of survey respondents expecting double-digit price gains in 2023, Ross says that includes some moving parts. While there are the usual factors, such as capacity constraints, demand levels and fuel, he adds that a key underlying factor is demand which continues to eclipse supply, as well as high demand and supply limits for items such as labor, equipment and real estate.

And when it comes to efforts to achieve LTL capacity, Ross cites efforts like investing in better tools and focusing on things like better communications with carriers as well as advanced planning.

“Some shippers say they’re tackling it by having fewer carriers to rely on, while others say they need more carriers to rely on, and some use brokers and some don’t” , says Ross. “It shows there’s more than one way to skin a spade. The benefits of closer partnering with carriers have shown that in this market, and in all markets experiencing these tight cycles. They should encourage better partnerships between shippers and carriers, but it’s always been an adversarial relationship because they feel it has to be a power struggle.

Have you taken steps to establish a closer partnership with your LTL carrier(s)?

Source: Peerless Research Group (PRG)

Jason Seidl, managing director of industry, air cargo and surface transportation at investment bank Cowen, points out how LTL demand is very different from TL demand, in that LTL is positioning itself more as a network type business, which is less constrained in terms of capacity. by its narrowest pinch point, whether it’s trucks, assets, door space, yard space, or dockers.

“The LTL market is also more of an oligopoly on the rental side, and it has shrunk this year with the bankruptcy of Central Freightways. [CF]says Seidl. “CF was about the 20th or 21st largest LTL carrier, but the LTL market on the rental side is small to begin with. In terms of available capacity, you could say it was lower in 2021 than it was in 2020. CF’s business was quickly swallowed up in the market.

Regarding LTL prices, Seidl says prices are likely to remain high, at least in the short term, given the strength in prices at present.

“Even if we get a downturn, I don’t expect prices to go negative,” Seidl adds. “I think the rate of increase would slow if we went into an economic downturn. But I don’t think we’ll see a slowdown in the rate of increase just yet – it’s too soon. A month of poor performance won’t lead to carriers cutting prices. »

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