The Current State of the LTL Freight Industry in North America

Every few years I like to take a look at the segment of the freight industry where I got my start, the LTL sector. As I reviewed the landscape for this year’s blog, I am struck by the significant changes taking place in both the United States and Canada.

Revenue Growth Stagnated

Here are links to the top 100 carriers in Canada (http://www.todaystrucking.com/top100 ) and the top 25 LTL carriers in the United States (http://www.joc.com/sites/default/files/u48801/truck-tables_1_0.jpg ). The strong surge in revenue that less-than-truckload carriers enjoyed in 2014 stalled last year, as weaker demand and lower fuel surcharges dragged down LTL trucking’s top line. The combined revenue of the 25 largest U.S. LTL trucking companies declined 0.5 percent in 2015 to $32.1 billion, after shooting up 9.1 percent to $32.3 billion in 2014, according to The Journal of Commerce’s 2016 ranking of the Top 25 LTL Carriers, prepared by SJ Consulting Group. The report concludes that the decline in revenue may have as much to do with falling fuel prices as lower industrial demand.

The LTL Industry has become a “Big Boys” Game

The trend toward consolidation and concentration of revenue has been playing out for the past decade. The biggest LTL carriers in the U.S. and Canada keep getting bigger. If the hundreds of smaller U.S. based LTL and cartage companies were (hypothetically) consolidated, their combined revenue would be slightly less than that of YRC Freight. At $32.1 billion, the combined revenue of the Top 25 U.S. LTL carriers is now 9.6 percent higher than their pre-recession record of $29.3 billion set in 2008. And the LTL industry as a whole has had more than $35 billion in revenue the past two years, a new record, SJ Consulting data show.

The Canadian LTL industry has consolidated as well with TransForce, Day & Ross Group and Manitoulin becoming the dominant players. In the past year, TransForce acquired three LTL companies, Clarke Transport, Vitran Express and QuikX Transportation. Not to be outdone, Manitoulin acquired Hi-Way 13 and Ridsdale Transport. During the same period, Kriska purchased Transpro Freight Systems and the Titanium Transportation Group acquired ProNorth Transportation. While there are still some quality LTL carriers (i.e. Maritime-Ontario, TransX, Midland Transport) that are un affiliated with the big three LTL players in Canada, shippers almost always have to consider one or more of the giants in evaluating their LTL service options in every region of Canada.

In the United States, the “billion-dollar club” accounted for 84.5 percent of Top 25 LTL revenue and 77.4 percent of total LTL revenue, as measured by SJ Consulting. The Top 25’s billion-dollar group last year was led by FedEx Freight, the largest LTL carrier and U.S. trucking company with $5.7 billion in revenue; XPO Logistics, with $3.5 billion in U.S. LTL revenue; and $3 billion national carrier YRC Freight. They were followed by ODFL, UPS Freight, Estes Express Lines, ABF Freight System, YRC’s regional group (which includes carriers Holland, New Penn and Reddaway), R+L Carriers, Saia and Southeastern Freight Lines. If ODFL keeps growing at its current rate, it’s likely to become the third-largest.

3PLTL’s Become a Force

Third party logistics companies and freight brokers are picking up so much less-than-truckload freight these days that they are being labelled “3PLTLs.” They already control about 25 percent of the LTL market in the United States, and if C.H. Robinson’s 2015 performance is indicative of what is happening in the broader market, that percentage is set to rise as new technologies and entrants gain market share. C.H. Robinson has more than doubled its LTL net revenue over the past five years. The largest U.S. logistics provider increased its LTL shipment volume by 36 percent year-over-year in the fourth quarter, while LTL net revenue jumped 41.4 percent to $89 million. For the full year, the logistics company’s LTL net revenue rose 39.3 percent to $360.7 million U.S., making them a major LTL player. These companies are taking market share from the large, traditional, asset-based LTL carriers.

At UPS Freight, LTL shipments per day declined 9.7 percent year-over-year in the fourth quarter, while YRC Freight’s shipments per day fell 6.9 percent. Tonnage per day at ABF Freight System was down 4.9 percent year-over-year in the fourth quarter. At Saia, shipments were off 6.2 percent from a year earlier. Reasons for a general year-over-year decline in LTL volumes include a contraction in industrial production in the second half of 2015, a normal seasonal decline, tough comparisons with a more economically vibrant second half of 2014, possibly the consolidation of palletized shipments into truckloads and market share gains by the 3PLTL’s.

This change is having a big impact on shipper-carrier relationships. The 3PTL’s are moving in between the shipper and carrier in many cases and are forcing asset-based carriers to rethink their business models and sales approach to both segments. “Rather than working with 12 or 15 LTL carriers (nationwide), there are shippers who will ask a 3PL to do it” for them, said Satish Jindel, president of SJ Consulting Group. The growth of the 3PLTL as a key interface for LTL shippers has become a significant change in the LTL market. One major 3PL, XPO Logistics took the opposite approach by purchasing Con-way Freight. This provides them with significant in-house assets in addition to the carrier network of their 3PL operation.

Ecommerce could be the next big game changer

Amazon, the leading ecommerce marketer, is testing ways of making deliveries outside the stable of LTL carriers identified above. From independent drivers to drones, Amazon is building up its final-mile capabilities in what Baird analyst Colin Sebastian estimates could be a $400 billion market for e-commerce delivery, freight forwarding and contract logistics. LTL company executives are closely monitoring Amazon’s moves.

Some trucking executives foresee a future with fewer 53-foot trailers powered by Class 8 tractors and more step vans, straight trucks and flexible vehicles. XPO chairman and CEO Brad Jacobs, who led the $3 billion purchase of the former Con-way Inc. last fall, called ecommerce demand “very strong” for his group of companies. “This is very important to the LTL and last mile business,” says Jacobs. “We spend a lot of time with our LTL customers, and they are very interested in linking up LTL with last mile operations.” Working toward that goal, XPO is offering pool distribution, retail replenishment and other “white glove” services to help lure e-commerce retailers.

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