With an almost audible snap, the doors of capacity slammed shut on hundreds of less-than-truckload (LTL) shippers this week, as the largest US LTL carrier, FedEx Freight, reportedly cut off service to as many as 1,400 customers Monday to restore balance to its network. The purge, first reported by FreightWaves, hits shippers amid an unprecedented capacity crunch affecting all transportation modes.
“My inbox is lit up,” Mike Regan, chief relationship officer at TranzAct Technologies and a prominent US shipper consultant and advocate, said Monday of e-mails related to the FedEx Freight action. “This is exactly what we have been warning shippers would happen” as capacity tightened, Regan said. “If you want an LTL carrier to haul your freight, you’ll have to adjust your expectations. Or pay more.”
An LTL executive who requested anonymity said e-mails from shippers started flooding his inbox Friday. “This places more capacity limitations on an already imbalanced market,” he said, referring to FedEx’s action. “Part of the limitation is a labor shortage, but this is just a very bizarre market. There is not one transportation mode that is immune from the imbalance in supply and demand right now.”
FedEx Freight declined an interview request, but a spokesperson acknowledged in an e-mail that the carrier is working “directly with select customers to address capacity concerns” as LTL freight demand rises. “The impact of the [COVID-19] virus has generated elevated volumes, and we continue to experience high demand for capacity and increased operating costs across our network,” she said.
“Until further notice, FedEx Freight has implemented targeted volume controls designed to minimize network disruptions and balance our capacity and demand to avoid backlogs across the country — particularly in the most capacity-constrained [FedEx] Freight service centers,” she said. “FedEx continues to keep commerce moving and deliver critical shipments during the COVID-19 pandemic.”
At the moment, “obviously the shippers are scrambling like crazy,” said Tommy Barnes, long-time transportation executive and current CEO of MyCarrier, a multimodal platform aimed at shippers. “The other LTL carriers are saying, ‘Don’t give this freight to me, because I don’t have the capacity either.’ Shippers are going to be going in circles looking for trucks, but there aren’t a lot of options.”
FedEx Freight is not the only LTL carrier trying to control volume, although other carriers are taking different approaches on a different scale. They may dial back the number of shipments in certain lanes, bypass congested terminals, or refuse shipments to certain locations. Carriers are also turning away non-contractual volume and using price and accessorial charges to change shipper behavior.
LTL at a turning point
FedEx Freight’s “targeted volume controls” will have a rolling impact on shippers across the LTL freight sector and beyond. The impact will not fade in a month or a quarter or two. Thirteen months of sustained rising freight demand and a widespread shortage of labor up and down supply chains has brought the LTL trucking sector, and the shippers that depend on it to move palletized shipments, to a turning point.
I think you’ll see an extremely tight LTL market for the rest of this year. You’ll get no relief on the LTL side.
In coming months “we might get a little softening in the truckload space, but what won’t change is the tight nature of the LTL market given the strength of e-commerce,” Adam Blankenship, chief commercial officer and executive vice president of BlueGrace Logistics, said in an interview. “I think you’ll see an extremely tight LTL market for the rest of this year. You’ll get no relief on the LTL side.”
Blankenship, who made those comments before FedEx Freight implemented its volume controls, underscored a major shift in the LTL business occurring during the COVID-19 pandemic. LTL volumes historically have been closely tied to US manufacturing, with operators hauling more industrial freight than consumer goods, but that is changing as e-commerce-related retail freight takes a greater share of the LTL mix.
LTL carriers are getting more middle-mile e-commerce freight heading to smaller distribution centers and warehouses and, to an extent, larger and bulkier final-mile freight headed to homes.