If you’ve been following the news recently, you’ve likely heard that less-than-truckload (LTL) rates are increasing.
Several LTL carriers, including Old Dominion, FedEx Freight, TForce Freight, and Saia recently announced general rate increases (GRIs). In many cases, trucking companies cited inflation adjustments, capital expenditure projects, and to fund expanded services as the reasons why.
The last two explanations make sense for shippers like Estes, Saia, R+L, and Pitt Ohio, which recently purchased former Yellow terminals. When the national shipping company folded in 2023, an estimated 8% of the market went up for grabs. Companies like XPO, Estes, and Saia jumped on the opportunity, snapping up terminals and expanding market share.
According to BlueGrace Logistics, by the end of 2023, the top ten carriers in the U.S. influenced 68% of the LTL market, including FedEx, which controlled 16%. As a result, pricing changes from one company often ripple across the industry as others follow suit.
While no one wants to see price increases, they aren’t the end of the world. Manufacturers and distributors can develop mutually beneficial relationships to keep products flowing and costs in check.
When we mention LTL carriers, we’re referring to companies moving small shipments, AKA less than a truckload. To get the most use out of the truck, companies combine orders from different shippers and only charge them for the space they use.
As a result, companies manage costs better as they only pay a fraction of the full price. However, managing logistics may be more difficult, and delivery times are longer because the trucks make several stops.
Like any price hike, several things can happen when LTL shipment rates increase.
First, the supply chain must adapt to the higher costs. While they may not be backbreaking, they may shock shippers who haven’t paid attention. Companies will need to realign their budgets to incorporate higher transportation costs.
Secondly, spot rates will increase for those who don’t have contracts. Spot rates use the current market to price out a good or service. In this case, trucking companies use constantly changing real-time data to decide short-term pricing. Shippers tend to use spot rate shipping as a one-off freight solution.
Contracts offer some protection against price hikes because they allow companies to lock in rates for some time. Unlike spot rates, which are tough to budget, contracts give some peace of mind for shipping costs.
Thirdly, more shippers may investigate other options, including multimodal shipping or moving to a full truckload (FTL) system. Full truckloads tend to have faster shipping processes, since goods are going from Point A to B, but are more expensive.
One other consideration is the expansion of small shipping companies to take on smaller shipments and local routes. These companies may offer more cost-effective shipping options or provide special services that make them valuable.
Lastly, higher LTL freight rates may increase costs across the supply chain. This could prompt manufacturers, distributors, and resellers to work more closely to find cost savings.
Shippers have been rolling with the punches for years, especially with the rise of e-commerce.
However, despite everyone’s familiarity with the LTL trucking system, there are still ways to find efficiency.
When we think about shipping, the first thing that comes to mind is logistics. Although planning is a massive piece of the puzzle, it isn’t the only variable to consider.
For example, using packaging and shipping space wisely can help shippers send more materials. It may mean using less dunnage, including packing peanuts, wooden blocks, and other fillers. Dunnage protects materials from damage during shipping but also consumes valuable space.
Finding alternative packaging methods, using smaller boxes to reduce wasted space, and maximizing fit can all make shipping easier.
Additionally, investigate other types of available shipping. Sometimes, an intermodal shipping method may make more sense than traditional trucking.
Whether it’s planning logistics, optimizing routes, or finding growth opportunities, companies have plenty of tools to improve LTL shipping.
The right tools can simplify the LTL supply chain and reduce the impact of general rate increases (GRI). From tracking shipments in real-time to improving business decisions and reducing risk, machine learning and AI tools can find efficiencies anywhere.
But remember, these tools work best when given clean, accurate data. If the data is wrong, companies can miss critical pain points, leading to lost time and revenue.
We can’t control how much customers order, but we can find ways to consolidate shipments to save money.
Instead of shipping orders multiple times per day, find ways to combine orders to reduce pickups and maximize trailer space. Although combining orders can be tough, it offers massive cost savings when done correctly. Bonus impact: fewer shipments mean fewer trucks moving freight, which is good for the planet!
Consolidated shipping may also result in several other benefits, including faster shipping times, better scalability, and better utilization of trucks.
If shipments don’t need to go out immediately, it might be worth exploring off-times.
Companies usually receive lower rates by taking advantage of off-peak hours/days. Additionally, off-hours pickups and deliveries may result in faster shipments, thanks to less congestion. Shippers also like staying busy, so allowing companies to find less active pickup times keeps facilities running smoothly.
However, before diving into new pickup scheduling, it’s worth checking to see if it aligns with operations. Companies should also see if the shipper charges a premium for pickups outside their designated times. Some shippers are more flexible than others, so do your research.
Information is the most powerful tool any company can wield. When members of the supply chain talk and share information, every link in the chain becomes stronger.
Building good relationships with carriers sometimes means better contracts, forecasting, and operations. Developing strong relationships with shippers and others in the supply chain may also reduce the impact of unexpected problems.
If the company doesn’t work directly with shippers, it should keep a good third-party logistics partner. These companies specialize in working with many different shippers to keep the supply chain moving seamlessly. When choosing a third-party partner, look for a company that can scale with you, communicate effectively, and maximize value.
“One of the most important processes is getting products to customers on time and undamaged, which requires freight and sometimes LTL services,” Kris-Tech’s Director of Supply Chain, Marcus Tagliaferri, said.
“The best way to manage shipping processes and costs is to develop close relationships with carriers and 3PLs. Sharing information and needs through open communication will, in turn, help you service customers better and more efficiently.”
The more things change, sometimes the more they stay the same.
Despite increasing rates and other changes, the overall system is stable. Companies taking advantage of LTL services may see slightly higher costs but can mitigate risk through smart decisions.
LTL carriers are facing higher business costs, and businesses will have to adjust. However, those carriers are also expanding their services, opening new locations, and restoring former Yellow terminals. This means more trucks going to more places, simplifying shipping for everyone.
The best thing companies can do right now is keep open lines of communication with everyone in the supply chain. Better communication often leads to stronger relationships between companies and shippers, more resilient supply chains, and better results.
Subscribe to Kris-Tech’s Newsletters