US LTL Volumes Drop, But Pricing Proves Resilient

Freight volumes at large US less-than-truckload (LTL) carriers are softening in the fourth quarter, and some trucking companies are responding with temporary layoffs or other cutbacks. But despite the downturn, LTL revenue and pricing remain elevated compared with a year ago and pre-pandemic norms.

Old Dominion Freight Line (ODFL) on Tuesday said while LTL shipments per day declined 7.3 percent year over year in November, revenue per day increased by the same 7.3 percent from November 2021.

The explanation for that shipment and revenue seesaw lies in a 17.3 percent increase in LTL revenue per hundredweight, or yield, including fuel surcharges, in the first two months of the fourth quarter. Excluding fuel surcharges, LTL yield increased 8.6 percent year over year, according to ODFL.

“Old Dominion’s revenue growth for the first two months of the fourth quarter reflects the ongoing improvement in our yield, which more than offset the decrease in volumes,” Greg C. Gantt, the company’s president and CEO, said in a statement. Price is not the only component to yield, but it is a big one.

Gantt attributed the decrease in shipments to “continued softness in the domestic economy.” That softness has shown itself at other LTL carriers as well, but not equally. Saia also saw LTL shipments and tonnage drop in October and November, with shipments falling 8.6 percent year over year.

Saia, a Georgia-based national LTL carrier, saw tonnage drop 7.7 percent in the same period, while LTL weight per shipment increased 1 percent from a year ago. ODFL’s weight per shipment dropped 1.4 percent in the first two months of the quarter compared with the same period in 2021.

“Across the board, business is down,” said Satish Jindel, president of SJ Consulting Group and ShipMatrix. “We are in recession as far as the goods sector of the economy is concerned. This is the time for carriers to cut back on capacity, remove substandard employees, and maintain pricing.”

Freight shifts, costs drop

Fluctuations in shipment weight may indicate some realignment of freight among modes by shippers, with truckload capacity widely available and truckload rates falling faster than LTL pricing. But they also may indicate companies are shipping less. “Instead of 22 boxes on a pallet, they’ll have 20,” Jindel said.

Although some cracks have been seen in the LTL sector’s pricing discipline, they are not large or wide.

The temporary furloughs or layoffs at FedEx Freight and some other large carriers are “actually a good thing,” said an LTL executive who did not want to be identified. “It means they’re willing to cut back and defend profits rather than lower price and try to grab more freight or market share.”

But LTL costs have come down. The US LTL producer price index (PPI), a measure of the average “selling price,” including any surcharges, that LTL carriers receive dropped 10 percent from May through October, but was still up 9.2 percent from October 2021, according to US Bureau of Labor Statistics data.

The LTL PPI rose an unprecedented 65 percent from its recessionary low point in May 2020 through May 2022. In the previous inflationary price cycle for LTL, from June 2016 through December 2018, the PPI rose only 14.4 percent. The massive two-year increase is unlikely to be erased quickly, if at all.

“Just because the economy is soft, you can’t take back employee wage gains,” Jindel said. “The cost of tractors and trailers are still up. The LTL carriers will have to maintain pricing to invest in the business. Carriers that haven’t looked at their costing models lately will need to take a fresh look at them.”

Some LTL carriers have announced general rate increases (GRIs) for 2023. FedEx Freight, the largest US LTL carrier ranked by revenue, plans to raise its general tariff rates by 6.9 to 7.9 percent, depending on the customer. Forward Air on Thursday announced a 5.9 percent GRI effective in February.

Those GRIs apply to noncontract freight and are likely higher than any increase a contract customer might see. Carriers seeking high single-digit contract rate hikes in the first quarter — typically the slowest season of the year for trucking — may well see their freight flow to LTL competitors.

“The smart carriers know which customers are profitable for them and which are not,” Jindel said. “Those companies whose freight isn’t profitable can expect increases. But the carriers need to be able to show the customer what they’re doing with this GRI.”

By: William B Cassidy / JOC