LTL Freight Marketplace To Remain Troublesome

The Less-Than Truckload (LTL) sector is showing signs that freight has bottomed, but the excess capacity from old and new players in that sector continues to result in heavy discounting. This will continue well into 2010 unless something drastic happens. The accompanying article allows for some comments looking ahead.

As noted many time in these articles, the LTL sector continues to be plagued by overcapacity and price discounting. As one who assists in planning for shippers and some newer players in the marketplace, we differ with some of the points made.

It is noted that there are deep discounts offered by major carriers such as Con-way Freight to take market-share. While there may be some truth to that, it has also been in response to YRC Worldwide deep discounting to try to gain back market share - whereby Con-way and others matches it. The shippers we work with want to have options lined up in case YRC disappears.

The other issue has to do with the amount of discounting going on. While it is noted that most of the General Rate Increases (GRI) are discounted, an assessment of the true rates spent by shipper’s shows considerable fuel surcharge is also discounted. Then when one assesses those rates from smaller shippers (and agents) with normally higher base rates than offered to big shippers, the discounts are even more than GRI in addition to with fuel surcharge.

The comments about the noted trucking company failures are more regarding the truckload sector than LTL, but the point about lenders being lenient with those truckers in trouble has been true. We do see those lenders however becoming more aggressive in repoing as of late. We see that also driven by the fact that the residuals continue to soften - without an end in sight.

We all hope that YRC doesn’t fail, as options leads to a more competitive marketplace. Big shippers like big capacity options, so of course they don’t want to see a big option disappear. Regardless, smart shippers have been rebidding and nailing down their new-better contracts (rates). Smaller shippers (the majority of marketplace) are less loyal. Newcomers (including more “logistics / broker & truckload players) are also bidding down freight rates.

Per the survey, shippers aren’t real optimistic about the freight side. We don’t see a miraculous freight rebound in the cards either. Therefore, it’s not a pretty picture.

Jay Thompson consults with leading institutions through GLG