Analyst Insight: Dry van full truckload (TL) rates have dropped almost 40% due to a decrease in demand and an increase in capacity in the market, yet less-than-truckload (LTL) carriers are showing rises in the 6%-10% range for their annual general rate increases. A differentiated strategy for LTL is necessary to manage costs and maximize revenue.
As truckload carriers become increasingly fragmented, with hundreds of thousands of carriers in the market, their rates will continue to deviate from LTL, which has fewer than two dozen key players. The top 12 carriers account for over 80% of all U.S. LTL revenue. Additionally, LTL carriers have more fixed overhead costs than truckload carriers, including tractors and trailers, terminals to cross-dock shipments, and more operational staff. Volume for truckload has come down considerably, while that for LTL has only dropped by a handful of percentage points.
Conducting a request for proposals in 2023 will be key to realizing savings in LTL expenses. This might seem counterintuitive, but by setting a competitive environment, even when prices are increasing, carriers will provide updated rates, and holes in their network can be taken advantage of, pushing them to bid more competitively.
For example, FedEx Freight might increase its rates by 7% from Georgia to Texas, but Southeastern Freight Lines might want more volume on this route, so could decrease its rate to accommodate that need and win the bid. This approach will also allow companies to standardize pricing structure.
Implement or audit the following standardizations:
Develop and implement a plan to optimize freight:
Outlook: The deviation between TL and LTL in both rates and carriers is a trend that transportation and logistics teams will continue to monitor in 2023. Prior planning and carrier consideration are increasingly central to managing the impact of rate increases, and will remain a key aspect of the 2023 strategy.
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