Challenges and Cautious Optimism in the LTL Sector Amid Weaker August Volumes

The less-than-truckload (LTL) sector faced a challenging August as several carriers reported weaker shipment volumes, reflecting the broader economic slowdown that continues to affect the U.S. freight market. Despite these challenges, some carriers managed to maintain favorable yield trends, emphasizing cost management and pricing strategies to protect their margins.

One key player in the LTL space saw a 4.6% year-over-year decline in tonnage during August, driven by a 4.5% drop in shipments and a 0.1% decrease in weight per shipment. This was a departure from the company’s flat volume performance in July and below expectations for “flattish” year-over-year results for the third quarter. The decline in volumes came as the broader industrial economy, which makes up two-thirds of the company’s freight, remained under pressure. The Purchasing Managers’ Index (PMI), a key gauge of U.S. manufacturing activity, remained in contraction territory for the fifth consecutive month in August, with a reading of 47.2 (where 50 indicates neutral sentiment).

Despite the volume challenges, the company reiterated its margin guidance, driven by favorable yield trends and a focus on managing variable costs. The company was able to protect its margins even in a “soft” demand environment, supporting the outlook for margin expansion. It expects to see an increase in yield (revenue per hundredweight) in the mid-to-high-single digits during the third quarter, following contract renewals that averaged 8% in the second quarter. The carrier also noted that industry pricing remains constructive, providing opportunities for above-market yield growth, even as volumes remain weak.

Another major LTL carrier also reported softer volumes in August. The company experienced a 6.1% year-over-year decline in tonnage, following a smaller 0.9% drop in July. On a two-year comparison, its tonnage was down 12% in both months, highlighting the prolonged impact of the broader economic slowdown. The company’s revenue per hundredweight, or yield, was up only modestly in August, following a 5.7% increase in July. For the first two months of the third quarter, the yield increased by 3% year-over-year, or 4.9% excluding the impact of fuel surcharges.

The company attributed the weaker results to continued softness in the domestic economy and the impact of lower fuel surcharge revenue on yields. However, it noted that daily shipment volumes in August were relatively consistent with July, suggesting that while overall tonnage is down, the pace of shipments has remained steady.

The softer volume trends come at a time when U.S. manufacturing activity has been sluggish, as indicated by the declining PMI readings. Freight demand, particularly in the industrial sector, has been weighed down by economic uncertainty, leading to cautious inventory management by shippers.

In contrast to these trends, one LTL carrier emerged as an outlier in August, reporting an 8.2% year-over-year increase in tonnage, following a 5% gain in July. On a two-year comparison, the carrier’s tonnage was up 15% in August after an 8.4% increase in July. However, the carrier has seen a shift in its freight mix toward lighter, retail freight and national accounts, both of which tend to have weaker margin profiles. While its volumes are growing, the lower-margin nature of the freight may present challenges for maintaining profitability.

Across the LTL sector, U.S. shippers are adopting more cautious supply chain strategies, reflecting concerns about the broader economic outlook. According to a recent logistics confidence index (LCI), positive expectations for revenue among shippers declined by 3.4% from the previous quarter’s survey, while neutral sentiment dropped by 4.3%. Negative expectations rose by 7%, signaling increasing uncertainty among businesses as they look ahead to the final quarter of the year.

The LCI data also revealed that shippers are becoming more conservative in their inventory management, with some reporting neutral sentiment regarding inventory levels rising by 7.9%. This suggests that while businesses may not expect significant growth, they are also not overly concerned about being overstocked, reflecting a more balanced approach to inventory in the face of unpredictable demand.

A senior logistics executive noted that many shippers have shifted to a more conservative supply chain strategy compared to 2021 and 2022, when demand for goods was higher. Economic conditions are driving these decisions, with many businesses waiting for clearer signals before making more aggressive inventory or shipping commitments.

The American Trucking Associations (ATA) also provided insights into the freight market, reporting a modest 0.3% increase in its For-Hire Truck Tonnage Index in July after a 1.8% decline in June. However, the index was still down 0.9% year-over-year in June, indicating that while there may be some recovery, overall demand remains soft.

Looking ahead, there are mixed signals about the strength of the freight market in the second half of 2024. While some industry analysts expect normal retail seasonal volumes in the fourth quarter, the cautious outlook among shippers suggests that any significant rebound may be tempered by broader economic concerns. For the LTL sector, this means navigating a complex environment where volume growth may be limited, but yield management and cost control will be critical to sustaining margins.

Overall, the LTL sector is grappling with a delicate balance between weak volumes and the need to maintain profitability. Carriers are taking different approaches, but the underlying theme across the industry is one of cautious optimism, with a focus on operational efficiency and pricing strategies to weather the current economic uncertainty. As the year progresses, the ability of LTL carriers to adapt to shifting market dynamics will play a key role in determining their success in a challenging freight environment.