The strong surge in revenue that less-than-truckload carriers enjoyed in 2014 stalled in 2015 and 2016, as weak demand and low fuel surcharges dragged down American LTL trucking’s top line. In Canada, low oil prices suppressed freight volumes in some western provinces while a weak Canadian dollar did not ignite exports from the major manufacturing provinces, Ontario and Quebec.
March 21, 2017
by Dan Goodwill
The following is my annual report on the state of the LTL Freight Industry in the United States and Canada.
Revenues Stagnated Again in 2016
Here are links to the top 100 carriers in Canada (http://www.todaystrucking.com/top100) and the top 25 LTL carriers in the United States (http://www.joc.com/sites/default/files/u48801/truck-tables_1_0.jpg).
The strong surge in revenue that less-than-truckload carriers enjoyed in 2014 stalled in 2015 and 2016, as weak demand and low fuel surcharges dragged down American LTL trucking’s top line. The combined revenue of the 25 largest U.S. LTL trucking companies remained unchanged in 2016 from 2015 at $32 billion, according to The Journal of Commerce’s 2016 ranking of the Top 25 LTL Carriers, prepared by SJ Consulting Group. In Canada, low oil prices suppressed freight volumes in some western provinces while a weak Canadian dollar did not ignite exports from the major manufacturing provinces, Ontario and Quebec.
The LTL Industry evolves into a non-Union “Big Boys” Game
The trend toward consolidation and concentration of revenue has been playing out for the past decade. The biggest LTL carriers in the U.S. and Canada keep getting bigger. For the first time, the top three spots on the American LTL list were held by FedEx Freight, XPO Logistics and Old Dominion, all non-unionized carriers.
Revenues from the LTL carriers not on the top 25 list declined by 4.7 percent in 2016, following declines of 6.0 and 6.6 percent in 2015 and 2014. Clearly this trend signals fewer choices for shippers as they go to market for LTL carriers.
Central Freight Lines, number 20 on the Top 25 list purchased Wilson Truck Lines, the number 24 LTL carrier in the United States. If the hundreds of smaller U.S. based LTL and cartage companies were (hypothetically) consolidated, their combined revenue would be slightly less than that of YRC Freight. At $32.1 billion, the combined revenue of the Top 25 U.S. LTL carriers is now 9.2 percent higher than their pre-recession record of $29.3 billion set in 2008. The entire LTL industry has had more than $35 billion in revenue the past three years, a new record, SJ Consulting data show.
The Canadian LTL industry has consolidated as well with TFI International (formerly TransForce), Day & Ross Group and Manitoulin becoming the dominant players in cross-border and domestic LTL transportation. FedEx and UPS remain significant players on cross-border LTL and small parcel shipping. In the past year, TFI acquired National Fast Freight, a domestic Canada intermodal LTL operation and Cavalier Transportation Services, a regional LTL player. These small deals were dwarfed by its US $558 million cash purchase for the Con-way truckload operations of XPO Logistics. Meyer’s Transportation Services, Canada’s 62nd largest trucking company, closed its LTL operations.
While there are still some quality LTL carriers (i.e. Maritime-Ontario, TransX, Midland Transport) that are unaffiliated with the big three LTL players in Canada, shippers almost always have to consider one or more of the giants in evaluating their LTL service options in every region of Canada.
In the United States, there are now eleven members of the “billion-dollar club.” They accounted for 83.4 percent of Top 25 LTL revenue, as measured by SJ Consulting. The Top 25’s billion-dollar group last year was led by FedEx Freight, the largest LTL carrier and U.S. trucking company with $5.936 billion in revenue; XPO Logistics, with $3.345 billion in U.S. LTL revenue; and $2.936 billion national carrier Old Dominion Freight Line. They were followed by YRC, UPS Freight, Estes Express Lines, ABF Freight System, YRC’s regional group (which includes carriers Holland, New Penn and Reddaway), R+L Carriers, Saia and Southeastern Freight Lines.
It is important to note that the large regional players are positioning themselves to be truly national players. The Central/Wilson merger provides this company with coverage from California to the east Coast. Saia plans to expand its coverage into the northeast with three to five terminals in Pennsylvania and New Jersey.
Better Pricing Discipline and New Pricing Systems
A few years ago, when the LTL industry was comprised of many more firms, price wars would take place with each downturn in the economy. Many of these companies that lacked good costing systems and pricing discipline have exited the industry. The survivors have gained an understanding that they must hold the line on rates and focus on profitability.
In addition, the survivors reduced the size of their networks and are adopting new pricing systems. LTL carriers are offering dimensional pricing as an alternative to tariff rates tied to freight classifications, and so-called dimensioners or scanners are being used to measure shipment sizes and weights at LTL terminals. Increasingly, the large LTL carriers that spent the early 2000s focusing on gaining market share are now concentrating on improving their long-term profitability.
3PLTLs Become a Force
Third party logistics companies and freight brokers are picking up so much less-than-truckload freight these days that they are being labelled “3PLTLs.” They already control about 25 percent of the LTL market in the United States. As highlighted in the Journal of Commerce report, five freight management companies now control over $3.2 billion in LTL freight. The list contains C.H. Robinson with just under $2 billion in LTL freight under management followed by Echo Global Logistics, Worldwide Express, Globaltranz and Unishippers. This percentage is set to rise as new technologies and entrants gain market share. C.H. Robinson is now the seventh largest LTL company in the United States.
This change is having a big impact on shipper-carrier relationships. The 3PTL’s are moving in between the shipper and carrier in many cases and are forcing asset-based carriers to rethink their business models and sales approach to both segments. The growth of the 3PLTL as a key interface for LTL shippers has become a major change in the LTL market. One major 3PL, XPO Logistics took the opposite approach by purchasing Con-way Freight in 2015. This provides them with significant in-house assets in addition to the carrier network of their 3PL operation.
Ecommerce is becoming the next big game changer
Amazon, the leading ecommerce marketer, is testing ways of making deliveries outside the stable of LTL carriers identified above. From independent drivers to drones, Amazon is building up its final-mile capabilities in what Baird analyst Colin Sebastian estimates could be a $400 billion market for e-commerce delivery, freight forwarding and contract logistics. LTL company executives are closely monitoring Amazon’s moves and trying to figure out where their fleets fit within the Ecommerce framework.
Some trucking executives foresee a future with fewer 53-foot trailers powered by Class 8 tractors and more step vans, straight trucks and flexible vehicles. The question is which are the right assets to employ in last mile deliveries. LTL transport seems to be a fit for bulky items and large appliances and electronics. As people buy more goods via Ecommerce, this will increase route density.
Looking ahead to the future, LTL carriers are upbeat on their prospects. There are not likely going to be many new entrants to the business due the high cost of creating hub and spoke operations. Demand has been solid through the last quarter of 2016 into the first quarter of 2017. President Trump’s America First policy is viewed as a business-friendly strategy. With carriers maintaining capacity management and pricing discipline, and with significant barriers to entry, shippers should be expecting rate increases in the range of 2 – 3 percent in 2017.
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Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to investors, vendors to the trucking industry, transportation and logistics organizations. All posts by Dan Goodwill