The LTL Freight Industry in the United States and Canada in 2019

The following is my annual report on the state of the LTL Freight Industry in the United States and Canada.

The Booming Freight Market of 2018

Strong economic growth and high employment in the United States and Canada, coupled with concerns over US tariffs and trade wars, and high truck utilization rates, propelled freight demand and freight rate pricing skyward. Contract and spot LTL rates rose to record levels. These powerful forces helped make 2018 an outstanding year for many, but not all LTL truckers.

How Big is the LTL Market?

The combined revenue of the 25 largest US LTL carriers rose 10.7 percent in 2018 to $38.7 billion, after rising a revised 8.7 percent in 2107. That’s a 20 percent jump in revenue over two years, with the biggest gains in 2018, according to The Journal of Commerce annual ranking of the Top 25 US LTL Carriers, prepared by SJ Consulting Group. Last year’s 10.7 percent growth rate was the highest for the Top 25 LTL carriers since 2011, when they grew 12.4 percent after a 9 percent post-recession revenue jump in 2011. Overall, the LTL sector increased revenue 10.4 percent last year, pushing past the $40 billion mark for the first time to $42.6 billion. That milestone reflects the strength of the US manufacturing economy, which has been expanding for 118 months, as well as consumer spending, which increased by $54.4 billion, or 0.4 percent, last November alone. The Canadian economy also had a strong year with good GDP growth and low unemployment.

Here is a link to the top 47 LTL carriers in North America in 2018 (https://www.ttnews.com/top100/ltl/2018 ) as listed in the Transport Topics website. Note that the list includes US, Canadian and Mexico-based LTL carriers. The March 18 issue of the Journal of Commerce contains a list of the top 25 LTL carriers in North America.

It should be noted that there are some significant omissions from the TT Top 47 list. A number of Canada’s largest privately held LTL carriers (i.e. Manitoulin, M-O Freightworks, Midland Transport), all with annual revenues well over $12 million are missing.

Canada’s larger asset-light multi-pallet LTL carriers (i.e. Hercules Forwarding, Polaris) do not appear to be included. Most Canadian carriers that serve the cross-border (Canada – USA) market cannot afford to invest in extensive terminal hub and spoke networks in the United States (or even in Canada). They either partner with American LTL carriers or serve the U.S. with an asset-light operation. These companies are an important option for shippers and load brokers.

There is also a question as to whether the impact of eCommerce on the LTL freight industry is properly reflected in these lists and in the LTL revenue totals. Outsourcing and omni-channel distribution are changing the LTL industry. Many of the traditional LTL players have established separate divisions to service the inter-city/local cartage/local drayage/last mile/final mile LTL delivery business. Of course, Amazon is very dominant in this sector with its Amazon Prime and other service offerings. They employ a range of carriers to provide these services.

However, there are a variety of new entrants that have been established to deliver refrigerators, stoves, bar-b-ques, furniture, large screen TVs and other LTL freight. The asset-based, asset-light and specialized eCommerce carriers missing on these lists beg the question as to whether the true value of the LTL market is $45 billion, $50 billion, $75 billion or more.

Unionized Carriers and Smaller Carriers Lagged Behind

Eleven large LTL companies increased revenue by double-digit percentages, from Old Dominion Freight Line, which saw revenue jump 20.6 percent to $4 billion, to Pitt Ohio Transportation Group, which increased revenue 10.7 percent to $616 million. Another 11 LTL companies advanced revenue anywhere from 3 to 9.5 percent. Smaller LTL carriers did not keep pace with the larger LTL players. The LTL carriers that didn’t make the Top 25 rankings saw revenue growth slow, likely as the 25 largest LTL carriers gained market share.

The unionized LTL carriers faced some challenges during this amazing year. One of the three Top 25 LTL carriers that took in less revenue in 2018 was Northeast regional trucking firm New England Motor Freight, which filed for bankruptcy protection in February of this year and shut down. In its bankruptcy filing, the company stated it had $343 million in revenue in 2018, down from $345 million in 2017, and a $20.9 million aggregate operating loss.

In a booming year, YRCW and its major affiliates, Holland, New Penn and Reddaway, also experienced growth in the four percent range. Modest revenue growth can be a good thing if yields are improving. Yields did improve somewhat at YRCW but high labor, rent and purchased transportation expense kept the company’s operating ratio above 97. ABF, the other major LTL player, performed slightly better with an OR of 95. These results were below those of many of the more profitable non-union carriers in this sector. YRCW’s New Penn division should be a big beneficiary of the departure of NEMF. YRCW will be under the microscope in 2019 as they enter union negotiations.

In a Strong Economy, Yield Management was the Key to Profit Optimization

The best-in-class carriers utilized a set of tools to achieve excellent results. As an example, industry leader Old Dominion posted an astounding 78 operating ratio. Yield Management consists of the following activities. First LTL carriers need a high-quality costing system to capture all key operating expenses, including waiting time, pickup and delivery intervals at the origin and destination locations timely preparation of freight and paper work and payment interval. Many of these companies employ dimensioning equipment to correctly capture weight and cube for the bulk of the shipments tendered to them. The term “Shipper of Choice” became popular in 2018 as many manufacturers and distributors tried to adjust their operating procedures to obtain capacity and mitigate the rate increases, they received.

LTL carriers also looked at the mix, service and volume of head haul and back haul freight on each lane, and in their entire network. The leading LTL carriers invested in better equipment, better freight handling and better IT to improve data management, fleet performance and knowledge of the business. This allowed them to make more informed decisions.

In some cases, fleets pushed for large rate increases or removed some revenue by design. They reduced their fleet size or freight volume and subsequently sacrificed top-line revenue to improve bottom-line profitability. Many of the LTL carriers that had growth rates lower than the average for the sector did it by largely trying to improve the revenue per shipment rather than handling more shipments. They focused on yields, not tonnage or revenue. They were disciplined, which was easy in a year of tight capacity and limited price competition. By moving the right freight through their networks more quickly and efficiently than the competition, these yield improvement efforts paid big dividends.

The Laggards

Roadrunner Freight, which saw LTL revenue drop 1.2 percent, was another of the three companies that experienced a revenue decline in 2018. Parent company Roadrunner Transportation recently completed a $450 million rights offering that transferred ownership of most of its stock to Elliott Management. Central Freight lines of Waco, Texas, was the third LTL carrier with lower revenue, dropping two places in the rankings as revenue fell 5.7 percent to $248 million.

To sum up, 2018 was a remarkable year for LTL carriers; it was very challenging for many shippers. The good news for shippers is that 2019 is expected to be a more moderate year for freight transportation.

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