The following is my annual report on the state of the LTL Freight Industry in the United States and Canada. Here are links to the top 100 carriers in Canada (https://www.todaystrucking.com/top-100-ranking-canadas-largest-hire-fleets/ ) and the top 25 LTL carriers in the United States (https://www.logisticsmgmt.com/article/the_top_25_trucking_and_less_than_truckload_ltl_companies_in_2017 ). The combined revenue of the 25 largest U.S. LTL trucking companies remained unchanged at $31.8 billion in 2015 and 2016, according to The Journal of Commerce’s 2016 ranking of the Top 25 LTL Carriers, prepared by SJ Consulting Group. In 2017 annual revenues grew by 7.8% to $34.5 billion.
The Booming Freight Market of 2017 - 2018
Freight volumes are strong as we approach mid-year. Carriers, hampered by a lack of drivers and faced with new time constraints due to mandatory electronic logging devices (ELDs) in the United States, are increasingly being selective in picking the best-yielding freight for their freight lines. LTL carriers are picking up volume from the tightening TL market. Some large TL carriers started rejecting lighter loads of 5,000 pounds to 10,000 pounds earlier this year, and that freight is now moving via LTL carriers. The net result is LTL freight base rates are soaring with some experts projecting increases of 4 to 5 percent or more. In addition, LTL carriers are doing a better job quoting accurate dimensional pricing and accessorial charges which also places upward pressure on rates. This environment will likely continue for the remainder of this year.
The LTL Industry remains a Non-Union “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. The top three spots on the American LTL list continue to be held held by FedEx Freight, XPO Logistics and Old Dominion, all non-unionized carriers. The performance of Old Dominion is particularly impressive with an 82.5 operating ratio, a remarkable number for a fast-growing $3 billion LTL carrier.
The Canadian LTL industry continues to consolidate with TFI International (formerly TransForce), Day & Ross Group and Manitoulin becoming the dominant players in cross-border and domestic LTL transportation. FedEx and UPS remain significant players on cross-border LTL and small parcel shipping. While there are still some quality LTL carriers (i.e. Maritime-Ontario, TransX, Midland Transport) that are unaffiliated with the big three LTL players in Canada, shippers almost always must consider one or more of the giants in evaluating their LTL service options in every region of Canada.
In the United States, there are still eleven members of the “billion-dollar club.” They accounted for 82.8 percent of the Top 25 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 $6.341 billion in revenue; XPO Logistics, with $3.641 billion in U.S. revenue; and $3.304 billion for national LTL carrier Old Dominion Freight Line. They were followed by YRC, UPS Freight, Estes Express Lines, ABF Freight System, R+L Carriers, Saia, Holland, and Southeastern Freight Lines.
Major Players Are Investing in operational Improvements and Technology
The major LTL carriers are investing in new technology to facilitate growth, improve yields and penetrate emerging markets. YRC recently re-engineered eight regional distribution centers to prepare for the growth it expects this summer. The LTL carrier took action to unlock underutilized capacity by converting eight existing terminals to distribution centers, effectively adding 837 doors of “transfer capacity” to its network, allowing the company to handle an additional 7,000 shipments a day. The expectation is for faster processing, greater density and fewer transfers of customer shipments. YRC also introduced 118 “meet-and-turn” relay operations involving 236 drivers from 20 terminals.
“YRC’s multi-year change management and technology investments around line-haul, pickup and delivery operations is now maturing into a 2018 benefit through overall mile reduction, better cube utilization and intended cost reduction,” stated Darren Hawkins, president, and COO of YRC Worldwide. “These large projects are being implemented in stages, and network benefits should continue to align around each additional install throughout 2018.” YRC is not alone. UPS, parent of LTL unit UPS Freight, says it plans to spend $12 billion on investments to expand its logistics network.
YRC is also using technology such as an applicant tracking system that allows for streamlining processes and reducing time to hire. “We’ve made investments in recruiting personnel to allow for additional driver training instructors throughout the network to support our tuition-free driving schools,” stated Dawkins in a recent Logistics Management article, adding that YRC operates over 80 driving schools throughout the country and continues to focus on promoting the dock-to-driver program to find over-the-road drivers from its most motivated dock workers.
For the past several years, major LTL carriers have been extending the proliferation of dimensionalizers on carrier docks. LTL carriers sell space on their trucks. These dimensionalizers provide more precise information regarding shipment size so LTL carriers are better able to capture the true cost of each shipment. The National Motor Freight Classification (NMFC) is less accurate in this regard. Carriers feel this dimensionalizer technology provides them with superior information about the costs to handle their customers’ freight. Carriers are also using analytics and business intelligence tools to drive pricing decisions.
A few years ago, when the LTL industry was comprised of many more firms, price wars would take place with each downturn in the economy. Many of these companies that lacked good costing systems and pricing discipline have exited the industry. The survivors have gained an understanding that they must hold the line on rates and focus on profitability. As these developments unfold, shippers are using technology to obtain competitive pricing and to route their LTL shipments.
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 continue to control about 25 percent of the LTL market in the United States. This change is having a big impact on shipper-carrier relationships. The 3PTL’s have been 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. The growth of the 3PLTL as a key interface for LTL shippers has become a major change in the LTL market. One major 3PL, XPO Logistics took the opposite approach by purchasing Con-way Freight in 2015. This provides them with significant in-house assets in addition to the carrier network of their 3PL operation.
The Retail sector and eCommerce are becoming major components of the LTL business
Retailers and consumers are imposing some significant demands on carriers. These include compressed delivery windows, increased compliance thresholds and chargebacks for non-compliant or missing shipments. To address these challenges, shippers are seeking LTL carriers with fast, precise service offerings. When vetting carriers, shippers are trying to take control of window requirements by partnering with LTL carriers that offer expedited shipping, as well as guaranteed delivery windows.
Another option is pool distribution versus moving individual long-haul LTL shipments. This can reduce line-haul expense and possibly even transit days. By releasing individual shipments nearer to retailer distribution centers, LTL carriers manage the final delivery leg. A multi-modal approach (over the road and intermodal truckload and less-than-truckload) provide increased speed-to-market, particularly when working with approved regional carriers, designated by the retailer.
Some LTL carriers achieve a preferred status with retailers based on their performance. The preferred carriers are given priority scheduling and delivery. Additionally, this may afford a carrier greater flexibility on inventory management and storage. Selected carriers that have preferred status in conjunction with window delivery services at their destination terminal, are better positioned to ensure that inventory can be sent to arrive in advance of the must-arrive-by-date (MABD) and have it staged for delivery to meet specific window requirements.
Shippers are also focusing on lead times, the number of days between (and including) the day a purchase order (PO) drops and its MABD. They are setting up a shipping schedule to put a carrier’s standard transit time on or before the MABD. To ensure performance, some LTL carriers now have MABD customer service representatives to monitor these shipments.
Most LTL carriers today are also trying to figure out how to serve the eCommerce market. Retailers in the eCommerce space are building smaller distribution or fulfillment centers closer to consumers, emulating Amazon. In the past, inbound traffic to the DC would often be truckload. Now, with a shorter length of haul, many retailers are more inclined to use LTL. Some LTL carriers stand to benefit from eCommerce via their “middle mile” operations.
Some LTL terminal networks are being designed to handle that leg of the freight movement. While truckload carriers often serve the “first mile” (DC to fulfillment center), LTL carriers are becoming increasingly involved in the “middle mile” and “last mile” deliveries. These eCommerce shipments often involve smaller size shipments that require timed deliveries early in the day. For some LTL carriers this involves establishing smaller service centers in some markets and buying smaller size vehicles with lift gates to perform deliveries to customers that don’t have unloading docks. LTL carriers are setting up time specific appointment windows and deliveries by 10:00 AM or before 5:00 PM.
Looking ahead to the future, LTL carriers are upbeat on their prospects. The pendulum has clearly swung over in the carriers’ direction. There have been very few new entrants to the business due the high cost of creating hub and spoke operations. The economies of the U.S. and Canada are strong. President Trump’s America First policy is viewed as a business-friendly strategy. With carriers maintaining capacity management and pricing discipline, and with significant barriers to entry, shippers need to optimize the management of their freight operations to keep their costs in line.
To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).