Less-than-Truckload Market Analysis Insight Q4 2018 & 2019

Consistent Growth and Higher Rates

Consistent growth and higher rates are two common factors in any LTL market analysis today.

The Less-than-Truckload (LTL) market is experiencing substantial growth in light of tightening capacity and the full-steam charge of e-commerce.

According to John D. Schultz of Supply Chain 24/7, the LTL market’s value sits at $36 billion, but that valuation is expected to swell to more than $40 billion by the close of 2018.

To conduct a full LTL market analysis, let’s take a closer look at what to expect in the coming months.

Few New Entrants Affect the LTL Market Analysis

There have been dozens of new carriers to offer Full Truckload (FT) services over the past year.

The Uberization of Trucking, self-driving trucks and automation are transforming how carriers operate, but let’s face facts: FT is more straightforward to handle by its nature. It requires the ability to move palletized shipments from point A to point B.

LTL is much more complicated. LTL carriers have brick-and-mortar terminals and many substations around the country.

LTL carriers function like a freight consolidator and de-consolidator at all times, while still taking on the role of FT to move shipments at a lower rate than parcels.

LTL is a living, breathing organism, and shippers must rely on existing LTL networks. Unfortunately, this means higher rates to keep up with demand.

E-Commerce Is Driving the Future of LTL

E-commerce is growing at a fantastic rate.

As little as one-year-ago, e-commerce was believed to make up approximately 11 percent of U.S. retail sales.

Today, e-commerce sits around 17 percent, but Walmart is betting on a bigger, brighter future of e-commerce.

The retail giant expects e-commerce to become 35 percent of all retail by 2020, reports ZD Net.

Such growth will be determined by the ability of Walmart to tap into the value of omnichannel customer sales. In other words, the lines between brick-and-mortar sales and e-commerce sales will become more blurred, and Walmart will sweep into to close more deals.

This is a factor affecting all businesses. The ability to offer online and in-person experiences merely is superior.

As more companies embrace omnichannel, e-commerce will grow, and since e-commerce is a vital aspect of the growth of LTL, omnichannel will play a role in defining the future of LTL.

LTL and the Capacity Crunch

The Capacity Crunch has been a topic of prime concern for shippers and carriers since 2014. When the economy began to swing away from the Great Recession, capacity was readily available. Steady economic growth, paired with excellent growth under the Trump Administration, has lined the pockets of businesses and retailers around the country.

A strong economy is having a profound effect on everyone, and Amazon recently announced plans to raise its minimum wage to $15.00 per hour, and reports suggest Walmart will follow in Amazon’s footsteps.

More money in the economy will have the natural effect of increasing demand for shipping. Shippers will be faced with tighter capacity, and the ELD mandate and HOS regulations will still force more truckers to enter early retirement or switch careers altogether.

Capacity in FT is a significant problem, ranked as an eight or nine on a scale of one to 10. The same problem is listed at a six for LTL carriers. This is due to the ability of LTL carriers to absorb changes in demand with greater ease than FT carriers.

Of course, higher demand for LTL carriers will result in reduced capacity so that rates will increase. However, rate increases throughout the capacity crunch may be much lower than the rates charged by FT carriers. A 60-percent margin separates capacity use between LTL and FT carriers.

What Else Are Amazon and Walmart Doing to Affect the LTL Market?

An analysis of the trends in LTL reveals the reach of Amazon and Walmart to be much more influential than first believed. The willingness of carriers to take on Amazon and Walmart freight is a critical factor in determining the ability to handle increased capacity.

Essentially, Walmart and Amazon are ramping up e-commerce sales, so demand must go somewhere. Capacity used is also less valuable because it means offering volume discounts to Walmart and Amazon.

SMB shippers cannot compete with the volume of the two retail giants, so they are more apt to move on to other options, like working with local and regional LTL carriers, expanding their use of 3PLs, reducing freight spend by getting the best rate possible and taking advantage of technology, like 2D barcodes and RFID, to increase visibility.

Where Does the Analysis Take Us?

As explained by William B. Cassidy of JOC.com, the current market will continue well into 2019. Everyone and everything at the moment fuels growth, and uncertain factors, like tariffs, trade wars, Amazon and Walmart, general rate increases, and surcharges, will affect how the LTL market responds.

Above all else, the LTL market will climb nearly 15 percent between Q4 of 2018 and 2019, but the uncertainty and gradual push away from FT to LTL, as well as intermodal shipping, could snap that prediction. Ultimately, we are sure of one thing; LTL growth will continue.

Shippers that can get into reasonable, negotiated rates from LTL carriers today will have an advantage in the coming year. One of the best ways to tap into this value is to work with a 3PL, like Cerasis, for both expanding e-commerce capabilities and leveraging a dedicated TMS, built for LTL shipping.

So aside from knowing what to expect regarding Amazon and changing capacity, what exactly do the freight rates look like for the next year? We’ll answer that question in our next post, which will be dedicated to freight rates for LTL carriers and how shippers can minimize their impact.

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