US LTL Market Softening, But Not By Much: 3PLs

Author PhotoBlueGrace Logistics

The softening in LTL pricing noted by BlueGrace mirrors the decline in the long-distance LTL producer price index over the summer, but pricing remains historically high.

JOC.com | William B. Cassidy
October 24, 2022

After two years of back-to-back double-digit rate increases, “the LTL pricing environment has softened significantly in the last 60 to 90 days,” Adam Blankenship, COO of BlueGrace Logistics, told JOC.com Thursday.

“Historically, rates are still high and pricing discipline is still there, but for the first time in three years shippers are going to see some relief in the absolute prices they’re paying,” said Blankenship, who also is president of managed logistics at BlueGrace, based in Tampa, Florida.

But there’s a substantial difference between the softening the third-party logistics (3PL) provider is seeing in the LTL market and what’s happened in the truckload sector, where spot prices have fallen by double digits since January and new contract rates are 8 to 15 percent lower than a year ago.

LTL pricing will be “more favorable” to shippers heading into 2023, but for many shippers that may mean LTL rates stay flat or dip only slightly, not by double digits, Blankenship said.

“You’ll see a pretty dismal rate increase environment for the LTL carriers,” he said. That doesn’t rule out increases, however. “I think the LTL carriers will announce modest GRIs [general rate increases]” for 2023, he said. Whether those GRIs survive contract negotiations is another matter.

There will be “rate resetting” by shippers, “but I don’t think you’ll see a lot of degradation,” said Blankenship.

The difference between significant savings and moderate rate increases doesn’t depend on rates, but on how well LTL shippers forecast their freight demand and make their freight attractive to carriers, Blankenship said.

“Carriers are going to price to get the stuff they want on their trucks,” he said. “They’ve done a good job over the last year of pricing out the freight they don’t want.”

Shippers “are in the position where they have to be nimble,” Blankenship said. “That’s always true, but there’s so much uncertainty in supply chains now that people need to control and understand data better than ever. Their historical supply chain may not serve them the best in a highly volatile market.”

Shippers that understand demand and forecast accurately “will come out of this the best,” he said.

Transactional softening

The softening in the past two to three months noted by Blankenship is clear in the monthly US Producer Price Index (PPI) for LTL trucking from the US Bureau of Labor Statistics (BLS), which dropped 6.5 percent from its peak in June through August before rising slightly in September.

Even so, the PPI was 15.1 percent higher year over year, and 30.9 percent higher than in the same month of 2020, according to BLS data. September 2020 was the low point for the LTL PPI, which rose 39.5 percent from that month through this June.

AFS Logistics and investment firm Cowen predict their LTL rate-per-pound index will drop from 55.3 percent in the third quarter to a fourth-quarter level of 48.6 percent. The index will still be 10.1 percent higher than in the fourth quarter of 2021, the companies said in a statement last week. AFS Logistics and Cowen produce a predictive quarterly report on LTL, truckload, and parcel shipping costs.

In the third quarter, the AFS Logistics/Cowen LTL index dropped 2.4 percent as fuel surcharges fell 5.4 percent. LTL accessorial charges leaped 8.4 percent quarter to quarter, however, and the LTL index was up 20.3 percent year over year.

“We expect continued high fuel surcharges in the coming quarter and LTL GRIs are just around the corner, but demand is softening and prudent shippers are already taking steps to reduce costs, while carriers take steps to ensure their networks remain full as the economy cools,” AFS Logistics CEO Tom Nightingale said in a statement.

Much of the softness in LTL pricing is likely in one-time transactional rates rather than contractual rates, said Geoff Muessig, chief marketing officer at regional LTL carrier Pitt Ohio. “If you’re going to see volatility in LTL pricing it will be in transactional rates first,” Muessig told JOC.com Monday.

“Contractual rates are still rising, as carriers can show where costs are rising, but the increase is in the mid-single digits,” as opposed to high-single-digit or double-digit percentages in 2021, he added.

Upcoming third-quarter earnings releases from publicly owned LTL trucking companies will shed light on how larger LTL operators fared in the third quarter when it came to rates, revenue, and profitability, and how they view the fourth quarter and 2023.

Preliminary data from several carriers, including Old Dominion Freight Line, Saia, Yellow, and XPO Logistics indicate carriers increased their revenue per shipment and profitability even when volume declined. In some cases, LTL carriers have deliberately reined in volume to preserve the fluidity of their networks and improve revenue per shipment and profitability.

“We’re still in the golden age of LTL in how carriers think about yields and pricing discipline,” Blankenship said.

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