2023 State of Logistics: LTL

At mid-year 2023, the great freight slowdown has produced an unusually sharp falloff in demand in the less-than-truckload (LTL) sector. However, what’s most surprising to analysts is how strong pricing has held up despite the sluggish market.

“I look at shipments and revenue per hundredweight,” says Satish Jindel, principal of SJ Consulting, which closely tracks the industry. “The economy is down, there’s no denying it. We’re in a recession as far as amount of goods being shipped and bought. If people have to spend more on services, there’s less to spend on goods.”

Yet, because of newfound pricing discipline among LTL leaders, tonnage is down, but it’s not affecting overall revenue. “They’re making up for it because of technology development,” says Jindel. “They get paid for the cubic capacity. Dimensional pricing is helping carriers navigate any drop in tonnage.”

Analysts and carrier executives say discounting, while still available, is more sporadic. “It’s not as widespread as in the past,” says Jindel. “Maybe that’s because there are fewer carriers today than 15 years ago. Carriers that are there still have memories of how it affects them, and most of them are holding their pricing discipline.”

For example, an inside look at pricing at Yellow, which controls roughly 8% of the $58 billion LTL market, shows that it has remained relatively strong—especially considering the lack of usual seasonality demand as we swing to the peak freight seasons.

A peek inside Yellow’s quarterly numbers details the bigger picture of resilient pricing in the LTL sector despite sluggish demand. In fact, the carrier has enjoyed 10 consecutive quarters in which LTL revenue per hundredweight, excluding fuel surcharge, increased on a year-over-year basis.

Including fuel surcharge, Yellow’s first quarter LTL revenue per hundredweight was up 4.4% and LTL revenue per shipment was up 6% compared to a year ago. Excluding fuel surcharges, LTL revenue per a hundredweight was up 2.8% and LTL revenue per shipment was up 4.4%.

This occurred while LTL tonnage per day at Yellow in the first quarter was down 12%, driven by a 13.3% decrease in LTL shipments per day. Sequential LTL tonnage per day trends compared to the prior year were as follows: January down 17.2%; February up 1.3%; and March down 16.9%.

Yet, for the month of April, Yellow received between 1% to 2% rate increases on contract freight for accounts that ended in that month. Year-to-date contractual renewals average between 2% to 3%—compared with year-ago increases averaging greater than 10%, Yellow officials said.

Nevertheless, Yellow is facing relentless cost increases in nearly every category excluding fuel. Contractual labor raises for its approximately 22,000 Teamsters employees is in the 5% range year over year. Since the inception of the current National Master Freight Agreement that became effective in 2019 through April 1, 2023, Yellow has increased wages for union employees by nearly $5 per hour, or more than 20%.

At Old Dominion Freight Line (ODFL), the nation’s 2nd-largest and most profitable LTL carrier, first-quarter tonnage per day dropped nearly 12% year over year in the first quarter. ODFL executives acknowledged on an earnings call that the freight bounce-back the carrier expected in the current quarter was illusionary.

Data for change in TL and LTL shipments and revenue per shipment from Q1 2022 to Q1 2023

Still, there are new players dipping their toes in the LTL waters. Knight-Swift Transportation Holdings, parent of the largest truckload carrier, is proceeding with plans to add 11 LTL terminals soon, according to an earnings presentation that revealed internal plans. This is occurring after Knight-Swift bought two mid-sized Midwestern LTL carrier, Midwest Motor Express and AAA Cooper.

While LTL providers such as Saia and XPO have added terminals recently as part of strategic growth, FedEx Freight is going the other way. It’s closing 29 locations. Yellow has also said that it’s trying to eliminate redundancy by selling excess terminals.

Because of better pricing discipline, tools and technology, carriers know the true cost of handling a shipment and bringing aboard new customers. “In the past they reduced pricing to win customers,” adds Jindel. “Now they’re finding out they can’t make money that way. It’s limiting them because of better visibility.”