The less-than-truckload (LTL) sector is at a crossroads. After enduring a two-year industrial downturn, LTL carriers are now hoping for a positive shift in the market. The departure of Yellow Corp. in July 2023, which left an 8% market share gap, briefly sparked some optimism as the industry absorbed the volume left behind. However, despite this brief respite, the freight recession has persisted, leaving many carriers waiting for the next demand catalyst to drive volumes and improve their freight mix.
As we head into the fourth quarter of 2024, there is cautious optimism but mixed results across the LTL industry. Let's take a closer look at the current landscape and the challenges LTL carriers face, including the impact of a prolonged downturn and what could potentially turn the tide.
The Lingering Effects of the Industrial Recession
The two-year industrial recession has weighed heavily on the LTL industry. The manufacturing sector, which is crucial for many LTL networks, has shown persistent contraction. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) for November revealed a reading of 48.4, indicating another month of contraction. This marks the eighth consecutive decline in the PMI, a troubling trend that has persisted for most of the past two years.
While there was a slight improvement in the overall index, and the "new orders" subindex even shifted into growth mode, it still suggests that the road to recovery will be a slow one. Historically, it takes a PMI reading of 52.3 or higher to see a meaningful uptick in manufacturing orders. For now, the LTL industry is left waiting, as the impact of these metrics is often seen in tonnage volume around four months later.
The Impact of Yellow's Exit
Yellow’s sudden shutdown last year left a significant gap in the LTL market, providing carriers with the opportunity to capture some of Yellow’s freight. However, this opportunity has already been absorbed by the market, and many carriers are now facing an even more challenging landscape. LTL carriers were hopeful that the increased volume from Yellow’s exit would provide a boost, but the freight recession has led to a quick plateau.
Carriers such as ArcBest, Old Dominion Freight Line, and XPO have all reported significant year-over-year declines in tonnage for October 2024. The comparisons are particularly tough when you consider that October 2023 saw an unexpected benefit from a cyberattack at competitor Estes, which temporarily disrupted the market. Adding to the complexity were two major hurricanes that also impacted freight flows.
Amidst these challenges, Saia emerged as an outlier with a 6.5% year-over-year tonnage increase, a notable achievement. This increase can be attributed to Saia’s strategic focus on retail-related freight and large, national accounts, which helped keep its network full despite the less favorable freight mix. However, like many other carriers, Saia faces the challenge of managing a shift in freight composition, with less dense retail loads replacing heavier industrial shipments.
The Pricing Environment: Rational but Uncertain
In an environment of low demand, many LTL carriers have managed to maintain price discipline, reporting mid-to-high-single-digit increases in contractual rates. These annual general rate increases have been a critical tool for carriers trying to manage their margins amidst a soft demand environment.
While pricing has shown resilience, the long-term sustainability of these increases remains uncertain. It will take time to assess whether these rate hikes are sticky and if they can continue to support the carriers’ operating ratios in the face of ongoing tonnage declines. FreightWaves' data on rate per ton-mile reveals a noticeable price drop since Yellow’s closure, a clear indicator that the industry is still struggling to find stability.
Mixed Expectations for Q4
Looking ahead to the fourth quarter, there is little consensus among carriers on what to expect. Operating ratios are generally expected to deteriorate by 200-250 basis points from the third to the fourth quarter, a seasonal trend in the LTL industry. ArcBest, however, has forecasted that it will experience a deterioration at the higher end of this range, while Old Dominion expects to exceed its typical seasonal deterioration by around 100 basis points.
This points to a challenging quarter ahead, with some carriers facing a steep decline in their operating margins. Despite these challenges, carriers remain hopeful that the end of the industrial recession is near and that an uptick in demand could provide the much-needed boost for the industry.
What’s Next for LTL Carriers?
The outlook for LTL carriers remains uncertain, as the industry continues to navigate through a challenging economic environment. The manufacturing sector’s contraction, combined with shifting freight mixes and fluctuating pricing, creates a complex landscape for carriers to operate in. However, the potential for recovery is on the horizon.
Carriers are hoping that a positive inflection in industrial demand, driven by the eventual end of the two-year recession, will provide the boost needed to improve tonnage and better balance freight volumes. Until that happens, the LTL sector remains in a state of cautious waiting—hoping for the next catalyst that will finally signal a shift toward recovery.
At Gain Consulting, we’re closely monitoring these trends and working with our clients to ensure they are prepared for whatever the market may bring. Whether it’s navigating pricing fluctuations, managing operational efficiencies, or optimizing your supply chain network, we’re here to help guide you through the complexities of the current freight environment. Reach out today to learn how we can help your business succeed in this challenging landscape.
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