Last week I had some great conversations that shed light on the changes that are occurring in the truckload and LTL sectors. On Monday, I was a guest on Jeff Berman’s Logistics Management 247 podcast. On Wednesday, I hosted a small luncheon for some shippers with our friend Shelley Simpson, the CEO of J.B. Hunt.
The conversations covered a wide range of subjects. Obviously, the subject at the top of the list was the impact that this continuing historic freight recession will have on capacity if more TL carriers file for bankruptcy. And if enough capacity leaves the market, will shippers experience yet another “Perfect Storm” like what occurred in 2021, when rates went through the roof?
In my conversations with both Shelley and Jeff, we also addressed the unprecedented deviation between truckload rates versus LTL rates. Traditionally the TL and LTL rates move in tandem – either rising or falling concurrently. Not so in the current environment. Truckload rates have moved along the bottom for over two years in what has become known as the “freight recession,” while the LTL carriers have kept their rates stable and even been able issue General Rate Increases (GRIs).
As it turns out, there is a logical explanation for the aberration between TL and LTL rates and understanding this aberration can significantly affect your sourcing strategies with your LTL and truckload carriers. LTL carriers can propose GRIs because of the market concentration issue. Since the top 25 LTL carriers control more than 70% of the LTL market, one event like the closure of Yellow (which controlled 10% of the LTL market), can have an immediate impact in tightening capacity. With Yellow’s closure, excess capacity in the LTL sector disappeared overnight as shippers scrambled to find LTL carriers to haul their freight. Less capacity with the same demand implies a seller's market and rates go up.
One other reason LTL rates have held firm is because of shippers with Just In Time (JIT) strategies that result in smaller and more frequent shipments. If the smaller, more frequent shipments issue is affecting your costs, give me a call - we have some strategies that can help mitigate these issues.
Another very interesting topic that we discussed is the fact that shippers really don't understand the business models for the carriers they are working with. For example, some shippers see J.B. Hunt as an irregular route truckload carrier, or an irregular route truckload carrier that also offers a dedicated carrier solution. But some shippers have known J.B. Hunt better and see them as also being the country's largest intermodal provider. However, Shelley, who is a very capable and talented CEO, noted that her executive team is leading J.B. Hunt in their transformation from being a trucking or transportation company to being a logistics company offering a variety of solutions.
Interestingly, Shelley’s comments mirror those I have heard from senior executives at LTL carriers. When shippers launch their LTL RFPs, all too often they are making assumptions about their carriers’ capabilities instead of really understanding the carriers’ networks and how these carriers have changed. As a result, these shippers suboptimize their bid results.
With everything going on, we encourage you to check out this new episode of the Logistics Management 247 podcast where we covered:
- How are the truckload carriers performing in response to market dynamics?
- What global events, such as ocean rates, are we watching?
- How is the economy impacting the transportation market?
- What’s happening with global trade and nearshoring?
Finally, in addition to interviews, I’ve been conducting private strategic briefings for executive teams. If you and your team are interested in exploring this for your company, simply give me a call at 630-530-6190, send me an email, or schedule a meeting with me.
Last but not least, if you haven’t already listened to my interview with Gary Shilling from earlier this month, you can still find it here.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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