One year back, less-than-truckload (LTL) freight transportation was in a tailspin. The pandemic had triggered a lockdown. The economy was cratering. Orders were summarily cancelled. Shippers, wholesalers and merchants were desperately trying to survive, and carriers were caught up in the downward spiral.
And now? With the economy in recovery mode and delivery patterns shifting away from full truckloads, many LTL freight carriers enjoy booming business and have recently raised prices. Their biggest problem is trying to figure out how to move all the freight being thrown their way.
Famine to Feast
“Everybody is a winner — national, regional, final mile. They’re all in a position of strong pricing power due to the capacity situation,” said Brian Thompson, chief commercial officer at the technology provider SMC3. “They went from famine to feast.”
SMC3 specializes in assisting LTL shippers and carriers with efficiency-related software and technology tools that help optimize the entire LTL-related supply chain. It’s in a unique position to observe the marketplace. More than 5,000 shippers, carriers, logistics service providers and freight-payment companies use its services.
While some of these gains may be temporary, LTL-related business has changed in two fundamental ways. For one, LTL carriers have been forced to engage more in last-mile delivery. Second, a heightened number of logistics carriers have turned to LTL carriers to provide necessary services.
Both developments should have staying power.
“Just like LTL carriers that have pulled into Final Mile, whether they like it or not, logistics providers and freight brokers have been pulled into LTL to service their customers,” said Thompson in a Zoom call.
LTL business accounts for about 12-14% of total trucking freight in the US by value, according to various estimates. Almost by definition, LTL is a lot more complicated than line-haul or full truckload, as each truck carries multiple orders to multiple destinations. It involves more handling, more stops and generally more planning. That all translates into more money spent in investments.
“LTL is a capital intensive mode of transportation with a high amount of overhead,” said Thompson. “So, they’re really sensitive to volume changes up or down.”
Publicly traded truck transport companies help tell the story of a renewal of fortune. Old Dominion Freight, for example, is one of the largest LTL carriers in the US. Its first quarter 2021 financial results are illustrative. LTL revenue grew that quarter about 14% to $1.1 billion. Net income, or profit, however, jumped almost 50% to a shade under $200 million. This came after a down year in 2020, where revenues dropped by 2.3%.
Another publicly traded company is SAIA. In a first quarter earnings call, CEO and president Frederick Holzgrefe said that SAIA in January implemented a general rate increase of 5.9%. Contracts renewed in the quarter carried with them an average rate increase of 9%, he said.
LTLs aren’t simply reaping free money, however. In fact, the move into Last Mile is as much a major challenge and an added burden as it is an economic boon.
“I had a company president once tell me his company can make six commercial deliveries in the time it takes it to make one residential delivery,” said Thompson. “An e-commerce shipment for a carrier is much less efficient than a dock-to-dock.”
We’re all aware of how the pandemic thrust e-commence, and by extension, last-mile, home delivery into overdrive. UPS, FedEx and, more recently, Amazon trucks now ply American streets to a degree practically unimaginable five years ago. And that’s only going to increase. Market research firm P&S Intelligence, for one, in February predicted that global last-mile delivery will grow annually by 20.3% during this decade.
This impacts LTL carriers in two ways: It lessens the deliveries to retail stores and their large distribution centers and instead spreads out deliveries to a wider range of destinations, developments that by their nature favor LTL over truckload. And it heightens the need for LTLs to become last-mile carriers.
Consumers over the past year haven’t just ordered online more groceries, clothes and toys for home delivery. The pandemic has triggered a boom in everything from home fitness equipment to home improvement construction material. These are heavy and bulky goods that delivery vans can’t handle. Almost all online retailers depend on outside carriers to move their goods.
Changes to LTL Business
Many LTL carriers have in the past outsourced last-mile deliveries to others. But shippers and 3PLs are now pressuring LTLs to accommodate their needs. What’s more, even those LTLs who partner with others for last-mile delivery must be on top of the process “because once you hand it off to a partner carrier, your customer still expects you to have visibility to that shipment all the way to the end,” said Thompson.
That means heightened planning and processing and a greater need to provide visibility to everyone from the shipper to the consumer. “They’ve had to really invest in technology and the strategy,” Thompson said.
“There’s not a single LTL carrier that has been able to escape dealing with final miles and the surge in e-commerce and final mile deliveries,” Thompson believes.
Add to this a change in distribution centers, from the mega-warehouses to the smaller, more regional and localized facilities that are quickly springing up to better serve last mile and more diffused distribution. That means fewer full truckloads and more pallet-sized shipments, said Thompson.
“Smaller deliveries to all of these smaller distribution centers creates more LTL volume because it becomes more cost effective to buy a part of a truck rather than a full truck-load,” he explained.
These developments address the other major change — a greater reliance by shippers and their third-party logistics providers on LTLs than before. This is primarily due to the heightened use of e-commerce and disruption of traditional retailing and the supply chains that serviced them. “Freight brokers and logistics providers that were primarily focused on truckload, with the e-commerce boom, they’ve been pulled into LTL to service their customers,” Thompson said.
That familiarity builds on itself with 3PLs and freight forwarders, Thompson believes.
“We’ve seen great interest from shippers, but even more so, the early interest is definitely from the logistics providers and the freight brokers,” he said explaining: “It maybe seemed a little alien to them when all they focused on were truck loads or truck-loaded intermodal. But now that they have started shipping LTL, they realize, ‘hey, I don’t have to buy a whole truck if I can just buy pallet spaces. I’ve got significant savings.’ Those buy rates and sell rates, that’s what logistics providers are focused on.”
As demand for trucking grows, shippers are being forced to broaden their network of carriers, understanding they can no longer rely on one or two trucking companies to accommodate the capacity they need. That expansion carries with it a need for more knowledge about not just individual carriers, but LTL in general. “LTL is kind of a unique bird,” said Thompson. “We’ve seen tremendous, tremendous interest in that just even in the last four or five months.”
At the same time, the LTL supply chain is undergoing its own kind of educational soul searching. As in other areas of logistics, the pandemic has heightened the need for more technology within LTL. Paperless handovers have become a safety issue. Keeping everyone in the loop from remote locations becomes a necessity.
Yet, said Thompson, only about 15% of LTL bills of lading are electronically processed. There’s a long way to go, but, Thompson said, it’s also a matter of shippers understanding the benefits of investing in technology. Some carriers, he said, are now offering financial incentives to shippers who can communicate electronically with carriers.
Originally, SMC3 was called Southern Motor Carriers Rate Committee. It was founded in the 1930s and served as an organization that compiled and published tariffs for Florida truckers. The organization began to fashion rates-related software for LTL shippers in 1998.
Czar Lite, which gives shippers the ability to select carriers based transport rates, still exists.
In 2005, Southern Motor Carriers unveiled BidSense, a bid procurement application. This allows shippers the ability to evaluate carriers. Two years later, the company changed its name to SMC3. In 2016, the company unveiled its SMC3 platform, which, through application programming interface, or API, enables Web-based services to shippers and carriers alike.