In this article, we’ll discuss the tonnage and the rate movements in the US LTL (less-than-truckload) industry. Notably, the LTL rates including the carriers’ capacity were much lower before 2015. However, in recent quarters, the rates have started moving upward.
Trends in LTL yield and demand
A careful observation of the above graph reveals that the growth in less-than-truckload yield expressed by revenue per hundredweight (excluding fuel surcharges) was up 3.5% year-over-year in 1Q16. However, the demand denoted by tons per day was down 2.8% in the same timeframe.
Sequentially, LTL yield growth has fallen to 1.1% in 1Q17. However, the year-over-year change in demand has turned positive. If this trend persists, it should lead to growth in the LTL yield in the coming quarters.
Why is the yield improving?
Greg West, C.H. Robinson Worldwide’s (CHRW) vice president of LTL transportation, noted five main drivers that are pushing LTL rates up:
- increased last-mile delivery due to online shopping
- steady rise in US manufacturing
- use of state-of-the-art technology for better pricing by carriers
- shortage of drivers
- possible consolidations in the LTL space
e-Commerce sales have given rise to final mile deliveries that have added to the demand in the LTL space. This, in turn, has lessened the demand for the full truckload carriers to the advantage of LTL operators. The growth in manufacturing has boosted raw material movement, which in turn boosted demand for LTL players. During the summer, the trucking industry (IYJ) tends to witness driver shortages, which has shifted the focus towards LTL operators.
Industry veterans are talking about seeing improvements in less-than-truckload yields. We’ll look at whether ODFL’s 3Q17 operating data reflect these improvements in the next article.