Chew On This: The LTL Market Present and Future

May 17, 2023

We know how vital the LTL (Less-Than-Truckload) market is. With U.S. e-commerce sales crossing the $1 trillion mark for the first time in 2022, demand for LTL shipping has been rising steadily over the last few years.

Our goal at Spot is to serve as a one-stop shop for all your LTL needs while simplifying the complex processes that typically come with shipping LTL.

Logistics Management recently conducted its “2nd Annual LTL Study” with the help of Peerless Research Group (PRG) to better understand the current LTL environment and the companies that use this vital mode of freight transportation. Data for the study was based on feedback from more than 215 buyers of logistics and freight transportation services. Here is what our Director of LTL, Tom Chew, took away after reading it.

LTL Rates Are Going Up

From 2022 to 2023, most respondents (62%) say that their LTL contract rates have increased, 25% say rates have stayed the same, and 13% say they’ve seen their LTL rates decrease during that period.

Over the next 12 months, 57% of those surveyed expect LTL contract rates to increase again, 32% expect them to stay the same, and 11% expect a decrease. 42% of those expecting an increase in 2024 are bracing for a jump of 5% to 9%; 38% expect the decrease to be less than 5%, while 11% expect a decrease of 10% to 14%.

But Chew on This!

Shippers can expect to see LTL rate increases. This is typically done via annual GRIs (general rate increases). These are released yearly to keep up with operational costs such as purchasing equipment, buying real estate for new service centers, technology, and employee pay. Each GRI varies by carrier, but capacity and the market can affect the size of the GRI. For example, in early 2022, ABF Freight issued a GRI of 6.9%, but in 2023 they lowered it 1 point to 5.9%.

Meanwhile, some carriers may choose to stay the same. For instance, Old Dominion Freight Line did a 4.9% GRI in 2022 and 2023. The only shippers who may not expect an increase are those with contracted prices, so that they may be exempt from GRIs.


Capacity Concerns  

28% of this year’s survey respondents ship between 1,000 and 9,999 domestic and international shipments annually. An equal percentage send out less than 1,000 shipments, while 20% fall into the 10,000-49,999 range. 12% of participants work for organizations that ship 200,000 or more shipments annually.

To keep up with e-commerce deliveries, 34% of companies are using more LTL, while 66% haven’t had to secure more LTL capacity in response to the uptick in online sales. Overall, 40% of respondents say e-commerce has not impacted their business, 43% say it has “somewhat affected” them, and 17% say they’ve been “highly affected” by the current e-commerce trends.

Tom’s Take

Capacity in the LTL space is lighter compared to last year. Multiple carriers reported in their quarterly earnings calls about down tonnage and shipments, except for ABF. They announced a shipment increase of 7.9% and a tonnage increase of 2.7% per day. What makes them different? ABF has been using a dynamic pricing model where they will lower or increase rates based on tonnage. If a lane struggles to fill, they will lower rates to make it appealing. If capacity gets tight, ABF will increase the price. Their unique model helped throughout this slower freight season, and time will tell if dynamic pricing generates yield as the market progresses.

However, there has been growth for LTL in the e-commerce space. A recent study by Armstrong and Associates discussed how LTL has been able to help shippers get products to customers within the e-commerce market. The study estimates that the last-mile delivery market experienced a compound annual growth rate (CAGR) of 18.2% from 2017 to 2021 and will have a CAGR of 11.8% from 2022 to 2025.

Long-term Partnerships

Of the companies surveyed, 36% secure LTL loads and capacity via the spot market, while 64% do not use this strategy.

29% of respondents using the spot market say their current contract is one week to less than two weeks long, while 27% say their contract covers less than one week. 21% have spot contracts extending one month or longer, and 10% say their contracts range from two weeks to four weeks.

More than half (53%) of respondents have taken steps to form closer partnerships with their LTL carriers, while 47% haven’t used this strategy. Those that have worked to form more intimate partnerships with their LTL providers report better pricing, higher reliability, better service, and improved support from their carriers. Others say that these tighter bonds have resulted in better responsiveness on the carriers’ part, more accurate pickups, increased capacity, and better operational alignment.

Roughly half (55%) of the LTL providers that survey respondents work with are national in scope, and 45% focus on specific geographical regions. When asked what they’re looking for in an LTL partner, respondents say that accuracy, better rates, collaboration, consistency, and dependability are top of mind. Other companies seek flexibility, better customer service, less damage, and more visibility from their LTL carriers.

Tom’s Take 

I may be slightly biased, but I am a huge proponent of maintaining strong partnerships with service providers. Businesses with close relationships with their 3PL or carrier will experience better service and pricing. Why? There is an incentive for both groups to work together and collaborate vs. transactional business.

From a service perspective, the 3PL or carrier will know their customer’s freight and be able to anticipate their needs. From a pricing perspective, the 3PL or carrier will be able to negotiate better rates due to familiarity with the product. Transparency is also key when discussing pricing because carriers need to know all the details to cost your freight accurately. Make sure you know specifics such as dimensions, lanes, commodity, and your customers’ needs.

The Future of LTL  

When asked where they see the LTL market one year from now, many survey respondents say they expect it to stay the same, with others expecting higher prices or tighter capacity. Still, others are hopeful that the LTL environment will improve—only a few believe it will get worse than it is now.

Three years from now, some respondents expect the LTL market to be “back to normal” or at pre-pandemic levels. Others are unsure about what’s ahead or expect the environment to stay the same now. Looking out for five years, respondents are more unsure of exactly what the LTL market will look like, but many are hopeful that it will improve or stay the same.

Back Chew the Future 

While we have certainly seen a slowdown in the freight market, it will not last forever. At the beginning of 2023, industry analysts projected it to take off by spring, but that has yet to happen. The general outlook is that 2023 will continue to be a rough year, but the freight will eventually return. It is a matter of when LTL carriers are working to be prepared for the market flip.

For example, carriers like FedEx Freight roll out temporary driver furloughs in some U.S. markets. Despite being slower, ODFL announced they are maintaining their yield discipline and not lowering pricing. They intend to be able to offset rising costs, and ODFL is willing to lose customers in the short term due to price because they anticipate those companies to come back when the market improves.

The Big League Chew

It is a shipper’s market right now regarding pricing—another reason to stay close to your service provider, whether a 3PL or carrier. While the truckload market has seen a considerable drop in rates, especially in the spot market, LTL carriers tend to be more disciplined. Part of it is due to the difficulty in starting up a new LTL carrier vs. starting as an owner-operator in TL. There are massive upfront costs involved with buying equipment, building a terminal network, and staffing. Larger carriers may purchase smaller regional carriers to expand their market share, as we saw when Knight Swift purchased AAA Cooper and Midwest Motor to become a noteworthy competitor in the LTL space.

Capacity is not an issue right now, given that tonnage and shipment counts are down for nearly every carrier. The e-commerce growth has helped, and there is still room for expansion.

As I mentioned, the freight recession will not last forever, and we can anticipate business to return eventually. When it does, buckle up!