As US truck capacity tightens, shipments cross modal lines

As US truck capacity tightens, shipments cross modal lines

Predictions that tight over-the-road capacity is here to stay, at least through 2019, argue for longer-term changes to shipper modal strategies. Photo credit: Shutterstock.


ATLANTA — The lines that traditionally divide truckload and less-than-truckload (LTL) shipments are blurring a bit, as truckload capacity gets tighter and retail demand stronger, speakers at the SMC3 JumpStart 2018 conference here said this week. Increasingly, they say, LTL and truckload carriers are carving out a "middle lane" between their sectors as freight volumes rise.

Tight truck capacity and high retail demand, in stores and online, are driving shippers and freight toward that middle lane from both sides, SMC3 speakers, attendees, and other sources said. That creates challenges, but also opportunities, for all parties, including third-party logistics operators (3PLs), trucking companies, and shippers looking to rein in costs as rates climb higher.

That middle lane may be narrow now, but it is getting wider as more traffic merges across the dotted lines dividing truckload and LTL. While LTL trucking companies say they are picking up more and heavier "spillover" freight from truckload carriers as available capacity shrinks, truckload operators are taking more partial shipments and consolidating LTL freight.

"We're seeing a weight per shipment trend rise, and that's the first indication we're starting to see a spillover" of freight from tight truckload capacity, said James Welch — CEO Of YRC Worldwide, the second-largest US LTL operator — Monday at the SMC3 conference. “I've heard from some of our competitors they're starting to see it as well.”

“Things will only get more fluid," Rob Estes, president and CEO of Estes Express Lines, the largest privately owned LTL carrier, said Tuesday, noting a similar blurring of some parcel and LTL freight. At Estes Express, shipment weights have been increasing year over year each month for the past year, and Estes has seen truckloads broken into LTL shipments.

“We have to work with shippers to better utilize the 26 skid positions in a trailer,” he said.

And the Amazon era of one-click orders and rapid delivery is starting to change not just business-to-consumer but business-to-business fulfillment, including transportation and logistics choices made by vendors and retailers.

As surface transportation becomes more challenging and expensive, finding the best way to utilize existing capacity, wherever it may be, becomes key for everyone in the supply chain. That means uncovering unused capacity that is often hidden in plain sight — inside hundreds of thousands of trailers and containers being moved over US highways and railroads each day.

For shippers, trying to find the best means to move freight is becoming more and more like a game of "whack-a-mole," or perhaps "whack-a-mode." Trucking executives increasingly say they need to be "mode neutral" in order to win and keep the business of customers shifting and mixing modes to reduce cost. And 3PLs are helping the first two parties accomplish that.

Partial truckload and volume LTL are not new ideas. 3PLs such as Echo Global Logistics and C.H. Robinson Worldwide offer partial truckload as part of their brokerage portfolio.

“As more and more companies develop strategies to compete with Amazon, they rethink how they use distribution centers and get goods to customers,” Doug Waggoner, CEO of Echo Global Logistics, said in an interview last year. “In some cases, they shift truckload to LTL and in others LTL to truckload, depending on the supply chain of that company.”

Shippers and their logistics partners are taking a fresh look at partial truckload and LTL volume as logistics demands and technology evolve. Growth in partial truckloads is being driven by shippers looking to move freight faster, hit narrow delivery windows, and avoid penalties from retailers, said Trent Broberg, general manager of marketplace solutions at Truckstop.com.

"The number one reason is the need for speed," Broberg said during a workshop at the three-day SMC3 conference, which drew more than 500 attendees Jan. 22 to 24. Rapid fulfillment and replenishment demand from e-commerce and brick-and-mortar retailers mean "there are more people who don't want to wait to build a full truckload now," Broberg said.

In the last six months, the number of partial truckloads booked through Truckstop.com’s load boards more than doubled, with daily volume rising to 20,000 to 30,000 partial loads out of a total of 500,000 shipments per day, Broberg said. The bulk of those partial loads are handled by owner-operators and small trucking companies that rely on the spot market, he said.

“The truckload carriers are trying to add to their cube and improve utilization,” Broberg said.

“It could be a case where they’ve got half a trailer open and want to find something else to fit in to maximize utilization. Or it could be that they need a backhaul, and they take a partial load to avoid running empty. They can’t just haul sailboat fuel. Let’s partially fill the truck.”

It is no coincidence, he said, that the surge in partial loads coincided with the sudden constriction in capacity that followed Hurricane Harvey and Hurricane Irma and the acceleration of the US economy in the second half of the year. But Broberg thinks the surge also reflects a change in how owner-operators and small carriers use technology to source freight on load boards.

"The load board isn't the place of last resort anymore," Broberg said. "People are using them for more than finding backhauls." As technology becomes more sophisticated, those carriers are using load boards to find "fronthauls" and backhauls, operating in a continued "closed loop." They are more likely to take a partial load or two to keep going and boost revenue.

He also believes the surge reflects Amazon era shipping practices; in particular, shippers receiving more frequent orders from retail customers are moving more freight through volume LTL programs or in partial truckloads. "Historically, maybe they’ve been able to fill a truckload every other week,” Broberg said. “Now they need to ship twice a week and deliver faster.”

Shippers stung by retailer compliance penalties when goods do not arrive at stores or distribution centers ontime are consolidating LTL shipments into truckloads and sending more partial truckload shipments, said Jeff Tucker, CEO of freight management firm Tucker Company Worldwide. Compliance fees for late deliveries can amount to millions of dollars per year.

"In many cases, it's not a per shipment penalty, but a penalty based on the entire amount invoiced for a quarter," Tucker said. "I have one customer that swung away from LTL to consolidate shipments into truckloads. They were willing to do that because on-time delivery certainty is a little higher with truckload than LTL. That's one component" of the shift.

Another consideration is cost. Simply breaking a truckload into several separate LTL shipments can certainly drive up costs, as can shipping a lone partial truckload surrounded by a lot of air. But both partial truckload and volume LTL can deliver savings to shippers when they tender freight that fills empty linear feet or skid positions in a trailer that is loaded but not full.

Shifting more freight to volume LTL could cut freight costs by double-digit percentages, not just through volume discounts but by reducing lost time and opportunity costs, said Tommy Barnes, president of logistics technology company project44. The company offers a volume LTL quoting and tendering system that connect shippers and 3PLs with carriers in near real time.

Potential savings on volume LTL shipments would depend on the type of freight, actual volume, and other factors, but could run 20 to 40 percent or higher, Barnes said. “It’s a big number.”

On the truckload side, partial spot loads average about 40 percent of the cost of a full truckload, Broberg said. “Our partial shipments on average are about 10,000 pounds and 16 linear feet. It obviously changes based on regions and dynamics.” He sees partial loads increasing on lanes feeding heavily urban markets such as Chicago, Los Angeles, and the US Northeast.

Meanwhile, the differences between partial truckload and volume LTL “are as clear as mud,” he said. Volume LTL shipments are often defined as being more than 7,000 pounds and 12 linear feet. That differs little from the average partial truckload booked through Truckstop.com. The biggest difference may be how the shipments are tendered. Partial truckload is entirely spot market.

Growth in volume LTL and partial truckload may be “bred in demand” for capacity, he said, “but I do think as we move into the digital freight market, you’re going to see this trend continue,” Broberg said. “There will always be a line in the sand between LTL and truckload, but if we can optimize our networks, it helps mitigate challenges imposed by the driver shortage.

“Just finding capacity, period, that’s the primary goal today,” he said. Whether a tractor-trailer is half full or half empty, a shipper will take it.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.