News / ArcBest rate hike masks slowing LTL market fortunes

© Zolak Zolak

At a time when truckload carriers are speculating if they have finally reached the bottom of their market, shippers using less-than-truckload (LTL) carriers are facing a rate hike. With effect from today, ArcBest is implementing a general rate increase of 5.9%.

According to the carrier’s securities filing of last week, the increase may vary by lanes and shipments.

LTL carriers have rolled through the softer market of the past 18 months with relative ease, able to maintain their margins. High entry barriers have shielded them from competition seen in the truckload segment, which was further fortified by the demise of Yellow Freight, which had held a market share of about 8% (albeit at the low-margin end).

It remains to be seen how far ArcBest will be able to maintain the higher rates, as the LTL sector is experiencing headwinds from softer market conditions. ArcBest managed to keep its shipment volume steady in the second quarter, but its daily tonnage kept slipping. It was down 20.3%, year-on-year which affected daily revenue and revenue per shipment.

Management expects tonnage to remain below its 2023 tally in the third quarter.

Rival XPO fared worse in terms of shipment volume, with shipment count down 4.5%, but tonnage dropped a more modest 4.6%, while weight per shipment slipped 0.1%. It was the only LTL carrier reporting results for August to reiterate its outlook for operating ratio in the quarter.

At Old Dominion, freight tonnage dropped 6.1% year-on-year in August, following a 0.9% decline the previous month. Revenue per day was down 5.2% in August.

“Our revenue results for August reflect continued softness in the domestic economy as well as the impact of lower fuel surcharge revenue on our yields,” commented Old Dominion CEO and president Marty Freeman.

“While our LTL volumes declined on a year-over-year basis, our LTL shipments per day in August were relatively consistent with July and our year-to-date average through the first half of this year.”

A softer market has been a theme mentioned by several LTL carriers in their earnings discussions. Saia was the odd one out, showing an 8.3% increase in tonnage for August, but it also registered some shift that impacted earnings. The mix of its business shifted to a greater share coming from retail customers and national accounts, which tend to produce lighter tonnage than the industrial sector and therefore a drag on margins.

This is no surprise in light of recent numbers from the US manufacturing sector. After a brief spell of expansion in March, the Institute of Supply Management’s manufacturing PMI retreated into contraction the following month, which subsequently worsened to a reading of 46.8 in July. August was a little better at 47.2, but still in contraction. Moreover, at a reading of 44.8, the production index was at its lowest level since May 2020, and new orders were contracting, indicating weak demand going forward.

These are ominous indicators for US LTL carriers, who score their best margins on industrial freight. About two thirds of XPO’s volume is reportedly tied to the industrial economy, which augurs tough going in the months ahead for the company.

On the bright side, the carrier has expanded its presence in the US-Mexico market. With an infusion of additional capacity and raising the number of border crossing operations to seven points, it launched XPO Mexico+ in July to capture a bigger slice of the cross-border flows that have been rising on the wave of nearshoring that has seen manufacturers establishing production facilities in Mexico to serve the US market or boosting existing footprints. The new offering boasts faster transit times covering 99% of Mexico’s postal codes.

There is some hope that industrial activity may pick up after the US election, as many companies have deferred investment decisions to await the outcome, but in the weeks ahead the headwinds for LTL players are unlikely to abate. Cargo owners are bound to leverage this as they discuss ArcBest’s latest rate increase.