Feb 5, 2025
The Implications of LTL Pricing Discipline Variability on Supply Chain Strategies
In the ever-evolving landscape of supply chain management, the variability of Less-Than-Truckload (LTL) pricing discipline has emerged as a pivotal factor influencing operational strategies. As businesses strive to optimize efficiency and reduce costs, understanding the nuances of LTL pricing becomes imperative. Fluctuations in pricing structures, driven by market demand, capacity constraints, and shifting industry regulations, can significantly impact logistics decisions and overall supply chain effectiveness. Companies that navigate these complexities with agility are better positioned to maintain competitive advantage and enhance customer satisfaction.
Furthermore, the integration of advanced analytics and technology to monitor and respond to LTL pricing variability can empower organizations to develop more sophisticated supply chain strategies. This article delves into the implications of LTL pricing discipline variability, exploring its effects on decision-making processes, risk management, and long-term planning. By examining case studies and industry insights, we aim to provide a comprehensive understanding of how businesses can adapt their supply chain strategies to mitigate the challenges posed by unpredictable LTL pricing, ultimately fostering resilience and sustainability in an increasingly dynamic market environment.
TD Cowen/AFS Freight Index shows LTL rates cooling after historic run on Production Schedules
According to a report by 3PL AFS Logistics and financial services firm TD Cowen, the less-than-truckload (LTL) pricing sector is in search of a new driving force. The report indicates that while LTL rates remain stable, there are early signs that carriers' pricing discipline may be weakening, particularly as demand continues to be lackluster.
The LTL industry experienced a temporary reprieve from the ongoing freight recession in the summer of 2023, notably marked by the closure of Yellow Corp. (OTC: YELLQ), the country’s third-largest LTL carrier. With the industrial sector now in its third consecutive year of decline and no major carriers facing imminent shutdowns, it appears that a more substantial demand catalyst is necessary for the LTL sector to drive rates upward.
The TD Cowen/AFS Freight Index reveals that the cost of LTL services per pound rose by 62.7% in the fourth quarter compared to the January 2018 baseline. This figure represents a year-over-year increase of 140 basis points but is 140 basis points lower than the previous quarter. Projections indicate that the index will see a fifth consecutive year-over-year increase in the first quarter, rising to 62.4% from 61% a year prior, although a slight sequential decline is anticipated, which is typical for this seasonally slower quarter.
Aaron LaGanke, AFS’s Vice President of Freight Services, remarked, “LTL pricing has shown remarkable resilience, largely due to carriers' enhanced sophistication in pricing strategies that align closely with the actual costs of transportation. Nonetheless, shippers may find opportunities, especially in a climate of low demand, as carriers look for 'attractive' freight that can be moved efficiently.”
The LTL sector benefits Despite Supply Chain Disruptions
The LTL sector benefits from a limited number of carriers in most regions, providing it with greater pricing discipline compared to the fragmented truckload sector, where numerous carriers often accept unprofitable rates during downturns. However, sustaining LTL pricing momentum necessitates an increase in volume. So how do the supply chain dynamics change everything despite the complex supply chain network?
Fourth-quarter reports from publicly traded LTL carriers indicated that gross yields, which encompass revenue per hundredweight inclusive of fuel surcharges, experienced a minor decline year-over-year but showed slight growth when excluding fuel surcharges. Traditionally, LTL carrier margins benefit from rising fuel prices, as fuel surcharge mechanisms adjust upward alongside increases in fuel costs.
The AFS Freight Index highlighted a 1.3% sequential decrease in LTL costs per shipment in the fourth quarter, which marked a 6.6% reduction year-over-year. Contributing factors included a 4% decline in diesel fuel prices sequentially and a 16% year-over-year drop. The report noted a 3.4% decrease in the average fuel surcharge among major carriers from the third to the fourth quarter, with the net fuel surcharge per shipment declining by 5.5%.
In the same quarter, both shipment weight and length of haul decreased by 0.3% and 1.4%, respectively. Additionally, FedEx's (NYSE: FDX) impending spinoff of its LTL division—the largest in the nation—could significantly alter the competitive dynamics within the industry. FedEx Freight plans to onboard 300 new LTL sales representatives in the near future.
LaGanke noted, “The spin-off of FedEx’s freight operations could disrupt existing dynamics, as shippers who have historically benefited from bundled parcel and LTL services for greater discounts may explore alternative options.”
Potential weakening of pricing fundamentals | Distribution solutions | Future Demand
Concerns also loom regarding the potential weakening of pricing fundamentals as carriers begin to redeploy the approximately 200 terminals acquired from the Yellow estate, with an eye on the remaining 100 locations set for auction next month. While some of these sites may never see LTL shipments again, carriers are eager to start generating returns on their substantial real estate investments, estimated at around $2.2 billion.
The report also indicated a 3.3% sequential decrease in TL linehaul costs per shipment during the fourth quarter, coinciding with a 3.6% drop in miles per shipment. This marked the eighth consecutive quarter of year-over-year declines in shipment costs, reaching a low not seen since prior to the pandemic, just 11.6% above pre-pandemic levels.
Looking ahead, the TL-rate-per-mile freight index is projected to be 5.1% higher than the January 2018 baseline in the first quarter, with a year-over-year increase of 20 basis points. “Although truckload demand remains stagnant, there are emerging positive indicators, such as rising spot rates and increased tender rejection rates, suggesting that carriers are becoming more selective in the loads they accept,” the report noted. However, the upward trend in the spot market has yet to translate into contract rate increases, with the market still experiencing overcapacity. The is always an average demand for annual flow and financial flow reports.
Tender rejection rates at the outset of 2025 are higher than in the previous two years, signaling that the market may be stabilizing. Spot rates have been steadily rising since November, and the upcoming fourth-quarter results from J.B. Hunt Transport Services (NASDAQ: JBHT) will provide further insight into the contractual bid season.
In Conclusion
The variability in LTL pricing discipline presents both challenges and opportunities for supply chain strategies. As companies navigate the complexities of fluctuating rates and service levels, it becomes imperative to adopt a proactive approach to pricing and capacity management. Businesses must leverage data analytics and market insights to make informed decisions that align with their overall logistics objectives. By fostering strong relationships with LTL carriers and embracing flexible pricing models, organizations can enhance their operational efficiency and responsiveness to market demands. Ultimately, a strategic response to LTL pricing variability will not only mitigate risks but also position companies for sustained competitive advantage in an evolving supply chain landscape.