Less-than-truckload carriers are battling to grab bigger slices of a small pie: total available LTL revenue. At $32 billion, LTL revenue represents about 5 percent of all trucking sales. Keep in mind that UPS alone is a $54 billion transportation company and FedEx a $44 billion company. LTL carriers increasingly are looking at how to make their pie bigger, if they want to claim bigger slices for themselves.
Carriers are considering several approaches, expanding services and trying to integrate them more closely with customer supply chains and converting freight that shifted to parcel and truckload carriers back to LTL. They’re also hoping a stronger recovery will lead to a rising tide of traditional palletized freight.
“Most of the growth will come from economic growth,” said David Congdon, president and CEO of Old Dominion Freight Line. “As the population grows each year, there will be continued demand increases for trucking and for LTL.” In particular, increased manufacturing in the U.S., Canada and Mexico would benefit LTL carriers that handle parts and components as well as finished goods.
E-commerce is another opportunity. “LTL is in a unique position,” said Jack Holmes, president of UPS Freight. “We have to be very aware of this ‘omnichannel’ phenomenon in retailing. Shippers are looking at different ways of moving inventory.” Several years ago, retail shippers began consolidating LTL loads into truckloads and running fewer, fuller trucks. UPS Freight built up its truckload capabilities in response, Holmes said. Now e-commerce could push some of that freight back to LTL or to parcel carriers as smaller, less-frequent shipments.
“LTL carriers also have to be more aware of sourcing,” he said, and be involved in customers’ supply chain sourcing decisions. That means playing a greater role in the deconsolidation of inbound freight at ports and freight shipping inland. “Carriers need to be much more dynamic and agile than they used to be,” he said.
“Truck tonnage is going to grow dramatically over the next 20 years,” FedEx Freight President and CEO William Logue said. “Economic conditions will drive volume, just the sheer growth of commerce will drive it. But no matter what the growth conditions are you need to find ways to improve your business.” Greater automation will play a key role, helping LTL carriers better identify opportunities for growth.
LTL carriers also could increase revenue by “charging for the services they already provide,” said Satish Jindel, president of SJ Consulting Group. That means not only eliminating billing errors but also making full use of accessorial charges to recoup the cost of services they essentially offer free, and using sophisticated technology.
“The reality is today if you do not have sophisticated technology, your business is at risk,” Jindel told LTL carriers at SMC3’s Connections 2013 Conference in Connecticut last month. LTL carriers get less than 2 percent of revenue from accessorials, he said, while parcel carriers get 10 percent. “Why the difference? They’ve used technology to capture the information they need for those charges.”