News / Softer industrial demand pushes LTL onto a bumpy road

Compared with operators in the truckload and parcel sectors, less-than-truckload (LTL) carriers have been caught in the trough that followed the  stronger 2021/22 market.

Still, several LTL executives have recently expressed discomfort over the balance of their traffic, which is tilted to the retail freight side, and economic indicators suggest their discomfort will continue.

Like their peers in the truckload and parcel sectors, LTL carriers are still struggling with headwinds. Tonnage growth has continued to shrink since the final quarter of 2022, the Uber Freight Q2 Market Update and Outlook shows.

The TD Cowen/AFS Freight Index, published in late July, shows LTL’s cost per shipment falling 2.6% in the second quarter, owing to declining weight per shipment and a lower fuel surcharge. However, rate per pound showed modest growth, which analysts attribute to carriers’ pricing discipline, and graduated pricing structures that make lighter shipments more expensive. They predicted a 0.3% gain in the LTL rate per pound index in Q3.

Uber Freight predicts LTL volume will contract 1.8% this year – an improvement on the 6.1% drop the sector suffered last year – before returning to growth in 2025, with a projected 3.5% volume increase.

“Most carriers have excess capacity, but the industry is leveraging technology, creating internal efficiencies, exerting price control and being more selective on opportunities to drive yield,” the analysts commented.

They noted that demand for LTL had declined year on year, but was nearer to equilibrium than in the truckload sector, which remains stuck in the doldrums.

“LTL carriers continue to have historically favourable financial results, despite some sag in demand,” they said.

Dean Jones, president of LTL for AFS, attributed LTL’s declining weight per shipment to customer dynamics at both end of the weight spectrum, with rising traffic from shippers “seeking relief from the punitive charges of parcel carriers”, while their desire to rein-in costs through more consolidated multi-stop truckload options pushed heavier freight away.

However, some LTL carriers have another explanation: they point to a widening imbalance between retail and industrial traffic in their mix.

In the recent round of earnings calls on second-quarter results, executives of four operators expressed discomfort pver the preponderance of retail business in their loads. Saia CEO Fritz Holzgrefe noted that the revenue profile of retail freight was “lower, or it’s different, to what we have traditionally dealt with”.

“We have to slowly get more into industrial freight versus retail freight,” added Alain Bedard, president and CEO of TFI International, which runs TForce Freight.

The chances of a significant rise in their industrial traffic are not very high, though. After a brief spell of expansion in March, the Institute for Supply Management (ISM) manufacturing purchasing managers index (PMI) dropped back into contraction in April, a descent that continued through recent months. In July, the index hit a reading of 46.8, down 1.7 percentage points from June. A reading below 50 signals contraction.

The manufacturing PMI has been in contraction in 19 of the past 20 months, while the new orders index dropped nearly two percentage points to 47.4 as production slumped to 45.9, due to stalling demand.

Tim Fiore, chair of ISM’s Manufacturing Business Survey Committee, blamed interest rates, adding that uncertainty about the outcome of the looming US election had added to the lack of improvement. Given the different economic priorities of the rivals competing for the US presidency, manufacturers have adopted a wait-and-see stance.

Mr Fiore reckons it will take at least three months for any significant improvement in the PMI to take hold.