Analyst Insight: Movement in the less-than-truckload (LTL) and truckload (TL) sectors has been at odds over the past few years. While the TL market is in free fall, the LTL market has fared much better. TL volumes are barely above levels seen in the 2019 freight recession, and most experts believe we haven’t reached the bottom. Analysts point to several macro trends buoying the LTL market, specifically e-commerce growth and the increasing impact of near-shoring since the start of the pandemic.
Supply chain and transportation have never been more important to our economy. The truckload market is cyclical in nature; therefore, demand will rebound once inflation starts to recede. Freight precedes the economy by six months, which means that if the market rebounds in the second half of 2023, one can expect to see an end to the recession shortly thereafter. In the interim, shippers and carriers must remain focused on long-term growth by negotiating fair pricing.
The shift to e-commerce within the LTL market has pushed more freight into its space than ever before, but stakeholders should expect to see more consolidation with an increased focus on first mile and final mile, white glove and special handling, expedited service, and over-dimensional and bulky deliveries. Market watchers shouldn’t be surprised to see LTL carriers push the limit upward on the size of orders they can take, further encroaching on truckload space.
Understanding the dynamics of the freight market is challenging. Although the industry is deeply fragmented, it has created a market rich with opportunity. Emerging technologies and increased consumer demand allow for new entrants and disrupters into the marketplace to engage and pursue exponential growth. Unfortunately, many stakeholders are stuck in the past, unable to see the evolution of freight. That mindset, along with inadequate risk management in areas such as cargo theft, safety and claims, remain the biggest threats to the industry.
There are several challenges that operators will need to navigate, including the effective management of fuel and insurance costs. Not much can be done in the foreseeable future that will lower fuel prices. Nuclear verdicts, punitive contract language and increased cargo claims are driving up insurance costs. The truth is that shippers who try to eliminate risk from their transportation budgets using contracts instead of behavioral change are causing the rise of insurance costs. Furthermore, the driver shortage will impact consumers directly at some point. Some estimates put the number of drivers needed to provide transportation over the next 10 years at over 80,000.
Outlook: Visibility within TL and LTL is going to be table stakes moving forward. With the advent of GPS and electronic logging devices (ELDs), trailer-tracking devices will allow for 100% visibility to freight in transit. Market watchers can also expect e-commerce and near-shoring to continue to have a major impact in driving increased freight volumes. Finally, expect a continued focus on efficiency solutions attacking areas of opportunity such as empty trailer space and empty miles.
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