News / Signs of a slowdown in LTL as FedEx starts to furlough peak season staff

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It’s peak season – and FedEx Freight is laying-off staff.

The less-than-truckload (LTL) arm of the integrator (the largest of the US LTL carriers) will start furloughing employees in some markets next month.

These furloughs, lasting 90 days, will include a number of truck drivers and FedEx Freight, which employs about 45,000 people, has stressed that the furloughs are voluntary and takers will retain health benefits and some incentives for their participation.

These cutbacks at the busiest time of the year are in the most profitable division of FedEx. Where other segments suffered severe setbacks in the past quarter, FedEx Freight’s revenues were up 21% and operating income jumped 67%, while the average daily shipment count shrank 5%.

Still, these results did not insulate the division from sweeping cuts FedEx has begun implementing after its disastrous quarter. Management has attributed the furlough decision to “current business conditions impacting volumes”.

So far, the LTL sector has driven through 2022 without a notable dent. While the truckload sector saw spot rates slump to pre-Covid levels in some markets and contract rates retreat between 2% and 7%% in the third quarter, LTL pricing has held firm at lofty levels.

LTL has historically been less vulnerable to demand swings than truckload, as it is less fragmented and has a relatively small spot market, with most traffic handled on annualised contract cycles. Moreover, there are fewer competitors, which makes for less aggressive pricing competition.

It has been noted that, in the downturn of 2019, LTL rates remained elevated for six to eight months while truckload pricing dropped, suggesting that this time the LTL sector should see prices begin to weaken.

According to Uber Freight’s Q4 Market Update & Outlook on the US trucking industry, published this month, demand has begun to soften. Recent shipment count was down 5%-6% year on year and tonnage had slipped 4%-6%.

So LTL carriers are bracing themselves for a bumpier road ahead.

Derek Leathers, chairman, president & CEO of Werner Enterprises, recently predicted a “subdued peak season”, with premium pricing for certain shipments down 60%-70%. For the next several quarters he expects a slowing economy and cost pressures to affect business, particularly discretionary goods.

LTL carriers with a high percentage of business from the retail sector are deemed particularly vulnerable. Yellow Freight, which counts about half of its customers on the retail side, is planning to sell 28 terminals, CEO Darren Hawkins said during an earnings call this month.

Saia president and CEO Fritz Holgrefe has said the company’s expansion drive is on hold for the time being and hinted it may delay plans for 10-15 new terminals slated for next year.

Amazon, whose transport costs climbed 10.1% year on year in Q3, has closed or axed 44 warehouses and fulfilment facilities and cancelled plans for another 25. The behemoth is cutting back drastically, looking to lay off 10,000 employees.

Facebook parent Meta is parting ways with 11,000 staff, about 13% of its workforce. The tech sector has been particularly hard hit by the recent market softness, and Amazon’s woes stem predominantly from that, but the cutbacks are also affecting its e-commerce and fulfilment segments.

Mr Leathers regards the current weakness as the beginning of a market correction.

“While peak season this year is underwhelming so far, it will only hasten the capacity correction that is already under way,” he said.

For the truckload sector, the outlook remains gloomy, despite an uptick in volume last month. In its analysis of the market, Cass Information Systems suggests growth will likely be negative in December, with volumes sinking about 5% year on year.

While this should not result in significant price relief for shippers this year, considerable cost relief is now highly probable in 2023, Cass noted.