If LTL rates keep going up, what's your fallback plan?
Oct 30, 2019
As shippers get ready to finalize their 2020 budgets, the most popular question we have been receiving lately is: “Why are my LTL rates going up when my truckload rates are going down?” The answer to this question has big implications for shippers as they look to manage their freight costs in 2020.
First, there are important differences between the truckload versus the LTL markets which means that for those shippers who are planning on seeing their LTL plunge like their truckload rates, think again. While there is excess capacity in the truckload marketplace, right now the LTL market is operating at or close to peak capacity. Proof of this is evidenced by the fact that even LTL carriers that have traditionally offered great service are having challenges keeping up with demand.
As Rob Estes, CEO of Estes, explained in his recent interview with us on trends in the LTL marketplace, the LTL carriers have infrastructure requirements that are significantly more costly and complex than truckload carriers. They can’t just go out and buy more trucks to meet demand; they need to have terminals to support their operations. And since these terminals can take up to four years to build, it helps you understand the constraints to adding more capacity.
What does this mean for shippers? It means that with such demand relatively high, LTL carriers are offloading the least profitable freight and replacing it with more profitable freight. And given the likelihood that there will be further consolidation in the LTL marketplace in the next 12 months, the LTL carriers are being very judicious in their pricing decisions.
That is why we are advising shippers to update their LTL sourcing strategies to take advantage of today’s conditions in the LTL marketplace. And that is why we are also recommending that shippers have a backup plan in case one or more of your LTL carriers close, abandon lanes or raise their rates sharply.
We have a wealth of information that we’d love to share with you on how you can protect your freight budgets if you get “surprised” by one of your carriers. We can also help you by benchmarking your rates, so you can understand your options and their financial implications. With the holidays and 2020 coming up quickly, now could be a great time to learn what’s possible.