Why Haven't LTL Rates Dropped Alongside TL?

Posted by Harriet Mills on Nov 22, 2019 10:26:11 AM


And what you can do about mitigating LTL costs ... 

LTL rates have remained high since the freight recession hit in Q4 of 2018, and to some, this is hard to understand. Conventional wisdom says that when market pricing for truckload shipments rises, so does Less-than-truckload (LTL) pricing.  Conversely, when truckload pricing dips, so should LTL, but we are beginning to see a shift in the industry that is far from normal.

The Reason

In a recent article from the Journal of Commerce, Senior Editor Bill Cassidy points to the adoption of new technology as the primary reason that competitive price degradation has not taken hold of the LTL market. This includes more affordable dimensional sizing equipment and the onboarding of electronic logging devices (ELDs) .

  • Dimensional equipment has become much less expensive, and many of the larger LTL carriers are making them standard equipment on their docks to get precise weight and measurements of each shipment. It is all about efficiency, which translates into doing things faster and more accurately.
  • ELDs, now required on all trucks, give LTL carriers the ability to track the time it takes to get loaded and unloaded, something that YRC Freight, according to Cassidy’s article, is including as part of their pricing structure when rebilling is needed for misclassified shipments. Detention times do matter.

Both of these technologies provide carriers and fleets with more precise and timely data than ever before, allowing them to maintain and validate higher rates. So much so that shippers may soon find themselves at a disadvantage. The need for countermeasures to find cost reductions, in terms of intelligent or “smart” shipper technologies, will become increasingly important, predicts the JOC article.

The National Motor Freight Classification (NMFC) system has long been the go-to for shippers when preparing their bill of ladings, but this soon may become an outdated practice because it can end up costing shippers more money than necessary. Freight that is classified using the NMFC system is often found to be misclassified and requires re-classification. This means rebilling, a process that saddles the shipper with hidden costs for time and associated product fees.

Dimensional pricing uses density, dollar value, and risk to arrive at a price. This accurate system of rating could eventually eliminate the freight-all-kinds (FAK) classification that is used frequently for multiple products on the same pallet. Some even predict that the NMFC will be obsolete as more advanced technologies take over.

Other Factors Affecting LTL

In addition to automation and computerization, there are other factors affecting the current LTL market. LTL freight shipping has been a low-margin business for a long time. New England Motor Freight (NEMF), one of the largest LTL carriers in the nation with 1,472 truck drivers, stated that they were operating on a 2.8 percent margin in 2018, a year prior to them going out of business. LME, based out of New Brighton, Minnesota, was another 400-truck LTL carrier that shut down in July 2019. These bankruptcies had an impact on capacity in the LTL marketplace.

This month, freight and logistics companies are entering peak season for the holidays. This is the time of year that intermodal shipments ramp up with overseas cargo hitting U.S. roadways, many of which are smaller shipments. These smaller shipments monopolize even more trucks that were previously being used for LTL shipments, making capacity for LTL  cargo tighter.

How to Combat Higher Pricing

You can’t change the market, but there are ways that shippers can mitigate these stubborn, high rates. Here are a few tips to save on your LTL spend, no matter what the market dictates.

  • Submit tenders in advance
  • Combine with rail/intermodal
  • Regular repeat freight
  • Contract Rates
  • Communicate

To learn more about these five cost-saving measures, download our infographic.

What’s Ahead for LTL Pricing?

As a 3PL that offers both dry and cold LTL shipping services, getting accurate information from the shipper for every load is a primary endeavor. Technology is helping us do that faster and smarter, which adds value and creates pricing integrity and stability. It is probable that LTL pricing won’t be in line with truckload’s rates anytime soon.

And speaking of technology, Choptank is launching a new customer portal called ORBIT TI™.  This software platform will allow shippers to access their individual shipment information while also offering valuable insights, trends, and market data available only to them through a secure login and password.

Tags: Shipper News, Cold LTL, Dry LTL