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5 Reasons Why LTL Rates Are Changing & How to Cope

5 Reasons Why LTL Rates Are Changing & What to Expect | Transportfolio

If you’ve been in transportation or logistics for any length of time, you already know that nothing stays the same for long. Recent less than truckload (LTL) rates and capacity levels have been below the levels we saw from 2005-2010. But that’s about to change—and it’s already started.

Most general rate increases (GRIs) happened late last fall. They’re typically on an annual cycle, so we expected to see them come when this fall rolled in. But they’re here already. The increases aren’t any larger than expected, but because they’re happening earlier in the year, they still add up. And it’s possible—in fact it’s happened before—that we could see two GRIs in a twelve-month cycle. This is similar to the way ocean rates rise; if the demand exists, rates may rise multiple times.

LTL shipping changes don’t exist in a vacuum

While the autumnal GRI may be here sooner than usual, the shift isn’t exactly coming out of left field. Other aspects of the transportation industry face similar changes and challenges. Transactional truckload rates are also up rather substantially, and the upcoming ELD mandate may affect truckload efficiency later this year. These types of changes promote a lot of movement between LTL and truckload service.

Top 5 reasons why LTL rates are increasing

There are probably an infinite number of reasons why we’re seeing LTL pricing changes, but we’ll focus on the top five—the reasons large enough to tip the scales for everyone, not just a specific company or industry.

1. There’s more ecommerce, and it’s changing the game

With the advent of “free shipping,” consumers no longer hold their online order until they can justify the shipping costs. Since products sold online ship directly to consumers’ homes rather than to brick and mortar stores, there’s more emphasis on the final mile than ever. And all of these small shipments are adding demand in the LTL space and potentially lessening the demand for full truckloads.

2. Manufacturing is growing too

According to the ISM index, the manufacturing sector shows nine consecutive months of expansion. That means more transportation, for both the raw materials used in the manufacturing process as well as for the finished products that are being moved to distribution centers (DCs) and customers.

3. Carriers are using technology to price better

Just as shippers use historical shipping data to improve their supply chains, LTL carriers are adopting technology that helps them be more efficient and better understand which freight is profitable and which freight isn’t.

Dimensionalizers are just one example of the latest technology that carriers are using. Dimensioning machines can accurately calculate the amount of space a shipment needs within a trailer rather than rely on the national motor freight classifications (NMFC). These tools lead carriers to be more accurate in allocating cube and weight, which can affect shared capacity pricing.

4. Driver shortage

It’s summer time, the season when everyone wants to be outside—including drivers. People like taking their vacations during nice weather, and enough drivers taking summer vacations can throw off a carrier’s coverage. Even more pressing is the number of drivers that leave their driving jobs for construction jobs every summer. Combined, these situations are adding a great deal of pressure to the availability of drivers.

5. Operations changes

While new LTL carriers rarely come on the scene, we do see acquisitions and consolidations among existing LTL carriers. This can cause capacity that was once readily available to leave the market entirely.

In addition, several regional LTL carriers are adjusting their service areas, adding stress in the areas most affected by changing service boundaries.

How you can ease the burden of an LTL price increase

It’s safe to say that LTL rate increases are inevitable and oftentimes unavoidable. But that’s not to say that it’s impossible to soften the blow.

If changes to your LTL rates are significant, consider finding a third party logistics provider (3PL) to work with. Often, their knowledge, combined with a consultative approach, can help you uncover other ways to affect your supply chain—from modal optimizations to consolidation strategies. They’ll be able to help you determine if small parcel, consolidation, LTL, or multi-stop truck is your smartest move.

Still have questions about increasing LTL rates and how they will affect your business? Connect with one of our experts today.

Comments

Thomas Wingate

It's only just begun. When ELD hit the marketplace this December rates are going to shoot thru the roof. And shipper and Brokers need to be prepared to begin paying detention pay otherwise companies will not carry their Freight

7.12.17

Reply

JIm Bramlett

More important than ever for shippers to understand the way the costing systems work so they can pro-actively adapt and modify their shipping characteristics to lower the carrier's cost and be able to better negotiate favorable pricing.

7.14.17

Reply

Doug Sartain

I just don't see where the ELD mandate in December is reason for LTL's to raise rates. Typically, LTL carriers have quality Safety departments that already closely monitor hours of service. Even their linehaul operations should not be effected since they generally operate one leg of a trip within legal hours or do a meet & turn. Perhaps the smaller LTL fleets may be effected as will the TL and independent owner operators. LTL driver turnover rates are improving and already significantly lower than TL operations. So I don't see much movement here for LTL. I think the article did a nice job with their top 5 reasons. I'm not saying that LTL won't jump on the bandwagon to raise rates when the ELD's become enforceable. They could use this period as a way to increase profits. We still see this today with the fuel sur charges. Fuel is $2.00+ cheaper than 2008 rates yet shippers still are subjected to high FSC in some cases. It's just another way to increase revenues without calling it a "GRI". I get it but at the end of the day, shippers need to evaluate a carrier's total value beyond just rates. And if rates are all that matter to them, ignore the reasons for an increase and just look at the out-of-pocket cost from point A to point B when comparing carriers.

7.14.17

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