Turbulence in the LTL Markets and What this Means for LTL Shippers
May 21, 2020
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
There is turbulence in the LTL marketplace. So it's not surprising that as rate negotiation and transportation sourcing experts, we have received calls and emails from shippers asking for our insights on what’s happening.
More specifically, several shippers have asked about whether this is a good time to be negotiating with their LTL carriers. While we have addressed this question in a recent Two Minute Warning, it's obvious that after what happened in 2019 with the closure of New England Motor Freight and Lakeville Motor Express, shippers are paying attention to the headlines in some recent freight publications.
Articles are highlighting things like:
- ABF drawing down the remaining $180 million available on its revolving credit facility, or borrowing an additional say $45 million under its accounts receivable securitization program;
- XPO potentially restructuring their company, or;
- Gloomy reports from financial analysts about YRCW's financial condition.
Suffice it to say that shippers may have some concerns about how these issues could potentially affect their business. And they're wondering how much time they need to spend considering the “what if” questions.
Our recommendation is that shippers look beyond the headlines and consider the context of what is actually occurring. In responding to these situations, we think it is important to provide some context about what is occurring, why it is occurring, and where we are likely to be one year from now.
For example, based on their filings with the SEC, ABF wanted to increase the company’s cash position and preserve their financial flexibility. They also noted that they had approximately $530 million to $540 million in aggregate cash/short-term investments at the end of March.
XPO's potential restructuring was in the words of some financial analysts a "trial balloon" to assess strategic options and had nothing to do with the health of their LTL operations.
YRCW's situation is significantly different than ABF. Given YRCW's history, their financial results get heavily scrutinized. Financial analysts noted they had concerns about the company’s financial condition prior to the COVID–19 crisis. In the wake of this crisis, those concerns have been heightened. But the good news is that the analysts and some shippers could be overlooking important reasons why YRCW can weather this storm.
First, prior to the crisis, there were signs that YRCW’s enterprise transformation strategy was delivering positive results in the first quarter of 2020 vs the first quarter of 2019. Another important factor in assessing YRCW's future are the relationships forged with both their unions and financial lenders several years ago when there were concerns about its future. The unions and lenders are fully invested in seeing YRCW succeed and we believe they will be instrumental in helping them survive the COVID-19 crisis.
We do have some recommendations for those of you who may still be wondering: Is this a good time to conduct a sourcing event with your LTL carriers? How should I factor the new variables into rate negotiations?
First, don't try to "time the market." It's no secret that some shippers try to base their bids on rates in the marketplace. Instead of basing the timing on market conditions, we recommend that if you have LTL contracts that are expiring, begin having a dialogue with your carriers well in advance of the expiration date.
Second, we recommend that you listen to our recent interviews with Rob Estes, CEO of Estes, and Darren Hawkins, CEO of YRCW, plus review some of our previous Two Minute Warnings so that you have an in-depth understanding of the issues that will affect your carrier rates.
Finally, since there are a lot of things happening in the LTL market that you need to know before you enter a negotiation, feel free to get in touch so that we can share additional insights that can help you understand the market. Also, one final recommendation. In analyzing when to conduct your sourcing event, the first thing you need to do is to let us help you benchmark your rates so you will have a better understanding of where you are at today.
Whatever route you go, we’re rooting for a solid recovery for companies throughout the world and expect things to heat up as we head into summer.