How the LTL Carriers' Plans for Growth Can Impact Your Freight Budgets
Aug 12, 2020
Our recent Two Minute Warnings have focused on helping shippers understand some factors that could impact their 2021 freight budgets.
As we look at the LTL markets it is interesting to note that despite lingering declines in the manufacturing sector, the declines in revenue and tonnage in the LTL market have narrowed down to single digits in the month of July. One important point that shippers need to consider is how changes in the LTL sector could impact your freight costs in 2021.
We mention this because an interesting aspect of YRC’s recent deal with the government is that $400 million of the proceeds will be used to upgrade their fleet. This will allow them to move ahead with their expansion plans, and compete with many other LTL carriers who are also pursuing expansion. YRC will be expanding their Regional Next-Day service, which currently includes 11 terminals in Texas, to six new states: Arkansas, Louisiana, Mississippi, Missouri, Oklahoma, and Tennessee. The goal of this service is to provide both faster delivery and fewer damages by decreasing the number of touchpoints.
But it is important to note that YRC is not alone. Other major LTL players are making their own expansions. For example, in the wake of the U.S.-Mexico-Canada Agreement, FedEx recently made an announcement that they’ll be opening a new 166-door LTL facility in Laredo, Texas. This will double the size of their facility in this area. Old Dominion is moving forward with growth and opened nine new LTL terminals so far in 2020. Estes is growing their network, Roadrunner Transportation Systems is also adding three new LTL terminals, and Forward Air recently announced that they will offer LTL services. Other LTL carriers are considering changes based on results. Some LTL carriers are doing much better than others and this impacts the resources available for expansion.
What this means for shippers is that they have a unique opportunity to lower their LTL costs by taking a fresh look at their LTL carrier mix. We have seen companies retain their incumbent base but shift freight based on more effectively aligning their freight with their carriers' changing networks. Other shippers have added new carriers that have different network capabilities.
In preparing their freight budgets, shippers need to ask: “Are we a ‘status quo’ shipper or are we willing to change and improve our sourcing strategies?” “Status quo” shippers will continue to use the same strategies in negotiating with their carriers and could well see their LTL rates rise by 4% to 6%, or more. Shippers who adjust their sourcing strategies and address changes in the LTL carrier networks could reduce their rates by 4% to 6%.
Based on your answer to this question, the potential difference in your LTL rates could be as much as 8% to 12%. Whether a shipper has higher or lower rates in 2021 will in large part be influenced by their flexibility and willingness to change.
If you’d like to be one of those shippers that is saving money, give us a shout or send us an email. As sourcing experts, we can share some insights on how to conduct great sourcing events with your carriers.