News / Shippers face higher LTL costs as carriers tighten price discipline

Propelled by the twin engines of rising industrial activity and a tightening truckload market, the US less-than-truckload (LTL) industry is enjoying strong demand – and shippers have to brace themselves for ascending rates.

Customers of ABF Freight, for example, learned on Monday that the LTL carrier will implement a general rate increase on 22 June. Except for some specific lanes and shipments, prices will rise 5.9%.

The rate hike announcement came in the wake of parent ArcBest raising its outlook for the second quarter, after revenue per day rose in April, tonnage and yield up 5% each, beating expectations.

Other LTL operators have also upped their projections for the current quarter. Old Dominion did after reporting a 12.3% daily revenue increase in May and an improvement of about 16% in yield. At XPO, daily shipments were up 3.3% last month and tonnage increased 0.5%, year on year.

Usually, ABF Freight would raise its prices in the latter half of the year, but recent developments have encouraged management to make an early move. Uber Freight’s Q2 report shows a 3.8% sequential increase in average shipment weight for the LTL sector – the first rise in two years, which points to an uptick in activity in the industrial sector of the US economy. This tallies with the Institute for Supply Management’s manufacturing PMI for May, which jumped to a reading of 54, from 52.7 the previous month.

Satish Jindel, founder and president of SJ Consulting, noted that Saia, XPO, and Old Dominion reported increases in shipment count and weight for May, pointing out: “The industrial sector has been a major driver of LTL business.”

A stronger tailwind for the LTL carriers has blown in from the truckload sector, where pricing has been on the rise as a result of shrinking capacity, caused by Washington’s determined efforts to drive out non-domiciled truckers and drivers whose command of English is judged inadequate.

In its Q2 report, Uber Freight noted that pricing in the truckload segment was up 24.8% year on year (excluding fuel) in April.

The momentum is expected to continue. Uber Freight predicts truckload spot rates to be 20%-25% higher year on year in the in the second half of the year, while contract rates are expected to be 5% to 10% up on 2025. And its analysts advised shippers to regard those new price levels as a new baseline rather than a temporary peak.

Mr Jindel noted that the recent ruling on broker liability by the US Supreme Court was triggering hikes in insurance rates for truckers, which will force some smaller operators out of the market, further shrinking truckload capacity and nudging shippers to turn more to LTL.

Meanwhile, the LTL carriers have shown pricing discipline through the past market downturn, and high entry barriers shield them from new entrants that might usher in downward pricing pressure, he said, concluding that pricing momentum in the sector would continue to point upwards.

Although capacity was unlikely to rise while demand continued to increase, carried by industrial activity and a shift of traffic from the truckload sector, LTL users need not worry about potential bottlenecks, added Mr Jindel.

“LTL carriers have excess capacity from the terminals they took over after the collapse of Yellow, so they don’t need to add more. They can absorb higher demand. There should be no concern for shippers about not finding capacity, but carriers will be seeking rate increases. We’ve already seen low to mid-single-digit increases. This will accelerate,” he warned.

He sees room on the shipper side to mitigate the impact of higher LTL pricing, advising them to optimise their loads and put more merchandise on the same pallet.

According to Uber Freight, this is already happening. Its report notes an incipient strategic shift at CPG firms aiming to reduce daily and premium LTL volume and focus more on consolidation and deferred options.