US LTL Carriers Look Past Downturn by Expanding for Next Rebound

The US economy may be heading toward recession, but many companies hauling less-than-truckload (LTL) freight are preparing for an economic rebound that is at least months away. Those LTL carriers are building or expanding terminals and adding services, anticipating more freight when the time comes.

Pitt Ohio on Monday added 32 next-day lanes to and from New York state from its core mid-Atlantic territory. The Pittsburgh-based regional carrier last year acquired Teal’s Express, a smaller New York-based LTL carrier, laying the groundwork for service and transit-time improvements in 2023.

Estes Express Lines opened one of the largest terminals in its nationwide network last week, a 203-door facility in Arlington, Texas, near Fort Worth and Dallas. The Richmond, Virginia-based LTL carrier will soon open a new terminal in its hometown and plans to open a third facility in Southern California.

Many other LTL carriers are on the move as well, adding services and facilities at a time when they might be expected to circle their trailers around their terminals, defending existing business. “People are planning for the next uptick,” Geoff Muessig, chief marketing officer for Pitt Ohio, told the Journal of Commerce Friday.

That uptick may not materialize until the second half of 2023, but trucking executives see it coming.

“You’d be hard-pressed to go back and find any other [trucking pricing] cycle where you went from peak to trough in longer than 18 months,” David Jackson, CEO of Knight-Swift Transportation Holdings, said during a fourth-quarter earnings call Thursday. “We’re already over 12 months into this.”

The LTL market is in better shape than the truckload sector. The US LTL producer price index (PPI) has bounced up and down since peaking in July, falling 9.3 percent since then by December, according to US Bureau of Labor Statistics (BLS) data. The LTL PPI fell 3.2 percent last month from November.

The LTL PPI in December was still 7.7 percent higher than a year ago, indicating that LTL prices remain elevated even though their trajectory has slowed its growth.

The lower PPI may also indicate fewer shipments, a hunch confirmed by carriers that tell the Journal of Commerce their customers are still shipping freight, but less than they did in 2021 or early 2022. Anecdotal reports from carriers have load volumes down as much as 20 percent year over year.

“I do believe the inventory destocking and smaller shipment sizes we started seeing last quarter will continue this quarter,” Tom Schmitt, CEO of Forward Air, said in an interview. “We will get to a more steady flow again in the second half of the year.”

Fighting for freight

That slowdown doesn’t make the market less competitive. Instead, the surge in new facilities and terminals shows LTL carriers are battling fiercely for customers. Although shippers say they are sticking with long-time partners, they also say they are more willing to peel some freight away for new carriers.

“You have to do more for the same amount of money and don’t even dream of coming in with premium price increases” in this market, Chris Jamroz, executive chairman of Roadrunner, said in an interview. He sees more shippers taking a “second look” at carriers they may not have used in the past.

“There is a place for everything, and there’s a need for all kinds of products and services,” Jamroz said.

Over the past two years, shippers that were hesitant to make changes “chose to ride out the storm,” Pitt Ohio’s Muessig said. “Now they’re much more amenable to exploring options,” he said. “They’re willing to have more carriers in their stable rather than fewer carriers,” a fundamental change in strategy.

Consolidation of “core carriers” to a small number was the goal of shippers before the pandemic, Muessig pointed out. That was before widespread supply chain disruption and capacity shortages proved the value of having more options in the form of additional carriers arriving at docks.

“Shippers are doing their due diligence,” Muessig said. “Some are taking the strategy of not bidding business out but testing the market with others to ensure the price increases are real, that they’re not being overcharged.”

And the amount of LTL capacity is still limited. When measured by the number of terminals, the 25 largest US LTL carriers lost 3 percent of their capacity over the last 10 years, according to logistics consulting and analytics firm SJ Consulting Group. Those 25 carriers had 3,065 terminals in 2012 and 2,966 in 2022, the firm said.

However, the top 25 carriers, which control 92 percent of the US LTL market, increased their collective number of terminal doors 2 percent in the same period, to 151,574, SJ Consulting Group said. That’s a net gain of 2,897 doors in a period when the top 25 LTL carriers’ combined revenue rose 58 percent.

Greater productivity

That’s evidence LTL carriers have handled larger volumes of freight without a significant expansion of total LTL capacity over the last decade. Carriers that have expanded capacity, such as Old Dominion Freight Line (ODFL), have moved up in the Top 25 carrier rankings through higher revenue.

“They’re moving more freight through their doors, increasing productivity and lowering operating ratios,” said Satish Jindel, president of SJ Consulting Group and ShipMatrix.

“Going forward, their growth is going to be more from competing with third-party logistics [3PL] companies managing heavy parcels and consolidating LTL shipments into truckloads,” Jindel said. “If I’m an LTL carrier, and I can help my customer optimize shipping, why give that business to a 3PL?”

The gain in terminal doors also says LTL carriers are expanding existing facilities more often than building new ones. And existing terminals that once belonged to companies such as Central Freight, New England Motor Freight, and other carriers that recently shut down are under new ownership.

Once plans to expand or build LTL terminals are set in motion, they’re hard to stop, Jindel said. “It can make more sense to go ahead and complete the terminal, even if you’ll just be break-even for a year or two,” he said. The best bet may be to buy land adjacent to terminals for later expansion.

“We’re not abandoning our search for these scarce properties because there’s a downturn,” said Muessig. Pitt Ohio has opened three terminals in recent years and plans more expansion.

“We’re competing against warehouses for land, which means we’re often paying top dollar,” he said.

By: William B Cassidy / JOC