LTL analyst Jindel addresses various industry themes at SMC3 Connections

In a wide-ranging presentation at the SMC3 Connections conference, which was recently held in Colorado Springs, Co., Satish Jindel, principal of Pittsburgh-based SJ Consulting Group, took a deep dive into the current state of the less-than-truckload (LTL) market.

Jindel addressed various aspects of the LTL market, including the impact of Yellow’s exit roughly a year ago, industry supply and demand, and opportunities for shippers, carriers, other stakeholders to work together, and changes in the parcel sector posing a threat to LTL.

“Based on the data—and data has no bias—the LTL industry today has been healthier than ever over the last 30-plus years, and even through there was a decline in 2023 revenue of 10% or more, most of it was attributed to a lower fuel surcharge.”

Addressing economic factors influencing freight transportation and LTL specifically, Jindel explained that services and goods remain the key components of GDP to monitor, especially the former in accounting for 65% of total GDP in 2023. And over 2021 and 2022, he noted that the amount consumers spent on goods was considerably more, as they could not spend on services, at that time.

“What that means is that we have to be careful about what the demand is,” he said. “There is flat industrial production…that doesn't help generate more shipments. The [second quarter LTL] yields are up 6%, which means carriers are disciplined to maintain decent levels of profitability needed to reinvest in your businesses. But to maintain that margin, you will have to manage your costs.”

To that end, Jindel highlighted how several LTL carriers, in recent months, acquired excess terminals that became available through auction, after Yellow’s market exit. And he raised the question of what the carriers whom bought those terminals will do with them going forward, given that carriers have “no influence over demand” and have to focus on managing costs.

As an example, Jindel asked the audience if airlines can increase demand by lowering ticket prices, which most attendees said no or that they were not sure. And on the LTL side, he asked if carriers lowered rates, can they promote consignees to ship more? The answer was no, based on audience feedback.

“Carriers who have bought the Yellow terminals have [collectively] spent billions to acquire them, and they will have to spend millions more to bring them into service,” he said. “They're going to have to enclose them with doors that will cost millions of dollars. That will add to the cost, but it will also add to capacity, and the moment the capacity is greater than supply.”

And that, he explained is where Yellow’s situation helped the market.

“The LTL shipment count between 2002 and 2023 dropped by 10.8%,” he said. “The LTL industry, collectively, in a year, handles 170 million shipments. That is the number of parcels the parcel industry handles in two days. Look at the performance of ODFL, Pitt Ohio, Dayton Freight, and Ward. For the number of shipments per day, per door, that they handled over 2021-2023, Dayton was the top performer, at 7.5 7.6, and 7.3, with Pitt Ohio at 6.5, 6.3, and 6.5. That means carriers have the opportunity to handle more shipments with their current base of terminals at doors. So, do you need to bring those other terminals online? You will have nightmares that will remind you of what our industry went through in 2009, when the carriers, to get freight on their trucks, were offering 90% discount for 90 days. Everyone was losing money, and shippers were getting bad service. When you add capacity, the price will come down, so be careful.”

While there is typically not a high level of LTL consolidation, Jindel pointed out that over the last 25-to-30 years, the three largest LTL carriers—Yellow, Roadway, and CF—have been long gone, while there has been some consolidation among the smaller carriers.

“The common theme that I see is going to prevail is which carrier is more disciplined in pricing it to make sure they are recovering the cost of handling the shipment in the way it imposes the cost on them,” he said. “The second part is that that they have technology. You cannot underestimate the importance of technology today. It is available, and it doesn't cost much, but you've got to invest in it. You can be a small carrier, and if you're investing in it, you can have very good technology. There is a small carrier with less than $100 million in revenue that operates so effectively that it has an operating margin better than the biggest publicly traded carrier with the highest operating margin. It can be done, but you got to manage your business effectively. That means good technology and good management.”

When asked where LTL growth come from in the future—given the decline in 2023 shipments, Yellow’s exit and subsequent shrinkage of LTL industry capacity, and rates rising, Jindel said that are a few things to consider.

For example, he observed that the products that we buy and consume are becoming lighter, which means that the average weight of shipments are going to be reduced. And, in citing his company’s billons of records of the parcel industry, he said parcel is already handing 14% of shipments under 150 pounds, with an enormous opportunity to increase that in 2024, with revenue expected to stay at current levels and possibly head up.

“When parcel sales representatives approach customers, they are focused on, how many LTL shipments they ship and who their carrier is,” he said. “They never ask about how many large packages are our shipping with FedEx and UPS. How many of your shipments are based on hundredweight pricing with FedEx and UPS? And if they start doing that, you start capturing the data, you will find an opportunity to have some of those shipments entered into the LTL, which they used to be in the 1980s and were called minimum shipments. Those minimum shipments are growing. You need to go after them with a concerted plan and an effort to get them, and you don't have to do it at a lower price. They're paying more to the parcel carrier, and you [LTLs] will have a better service. You can keep the shipment integrity better. You will have lesser damage with those big boxes. So, I see an opportunity of growing in that. And then I think Mexico is going to help.

So, in my mind, I see among parcel LTL, and truckload, LTL is going to outperform the other two over next three years if you do things that you have opportunity to do. But and this is very important, you can't push your changes onto the shippers. You need to collaborate with them. You need to work with them, and ensure that some of the changes you're bringing are going to help them also in ending up with a lower price for them, and still a high margin for you.”