In the third quarter of 2024, the dynamics within the less-than-truckload (LTL) freight industry continued to evolve, with retail freight demand outpacing industrial shipments, a trend that has now persisted for several quarters. Companies like Old Dominion, Saia, and XPO are seeing this shift firsthand, as manufacturing challenges have altered the traditional mix of customers that LTL carriers typically rely on. But what does this mean for the future of the supply chain, and how should companies like yours—whether in retail, manufacturing, or construction—adapt to this shifting landscape?
Retail Freight vs. Industrial Freight: A Shifting Balance
LTL carriers traditionally have a freight mix that leans heavily towards industrial shipments, often accounting for about two-thirds of their total volume. Industrial shipments are typically heavier and, as a result, tend to be more profitable for carriers. However, over the past several months, this balance has tilted. Retail freight has been outperforming industrial freight, largely due to persistent weakness in industrial demand and shifts in consumer behavior.
This shift in demand isn’t just a temporary blip but a sign of changing market conditions. According to several executives from leading LTL carriers like XPO, Saia, and Old Dominion, the retail sector is proving more resilient in comparison to the industrial side of the business.
Why Retail Freight Is Outpacing Industrial Demand
There are a few key factors that are contributing to the outperformance of retail freight over industrial shipments:
Manufacturing Contraction: The industrial side of the economy, which includes sectors like construction, agriculture, and heavy manufacturing, has been struggling with weak demand. XPO’s Chief Strategy Officer, Ali Faghri, noted that demand from construction and agriculture customers remains particularly soft, a trend that has persisted through much of 2024. This sluggish demand for industrial freight reflects broader economic challenges, including high interest rates and global supply chain disruptions.
Shifts in Consumer Behavior: On the retail side, consumer spending has remained relatively strong, even as some industries face challenges. This is especially true in categories like machinery, automotive, and consumer goods. Retailers have adapted by consolidating shipments to take advantage of more cost-effective transportation options, such as shifting some freight to full truckload shipments when possible.
Retail Supply Chain Adjustments: Retailers are also adapting by looking for more efficient ways to move goods. A prime example of this is Walmart, the world’s largest retailer, which has been consolidating LTL shipments into full truckloads to take advantage of cheaper rates. By opening more distribution centers to facilitate this, Walmart is pushing more volume through a streamlined supply chain, further enhancing the strength of retail freight demand.
E-Commerce Boom: The ongoing growth in e-commerce is another factor driving demand for retail freight. Online shopping, coupled with consumers’ continued preference for fast and free shipping, has kept the retail supply chain robust, even amid economic uncertainty.
Retailers’ Resilience: Retailers have shown remarkable adaptability throughout the pandemic and subsequent recovery phases, responding to shifting consumer preferences and supply chain disruptions more nimbly than many industrial sectors. As a result, retailers are able to maintain a relatively strong demand for transportation services, particularly in the last-mile delivery space.
The Impact on LTL Carriers
For LTL carriers, this shift means recalibrating their strategies and adjusting their business models to accommodate a new balance between retail and industrial freight. Typically, LTL carriers have a mix of about two-thirds industrial freight and one-third retail shipments. However, in recent months, this mix has shifted, with retail freight now making up a larger share of the total volume.
Saia’s CEO, Fritz Holzgrefe, noted that Saia’s freight mix is “a little bit more tilted to retail right now.” This shift isn’t without challenges, however, as not all shipments fit neatly into one category or another. For instance, determining whether a shipment like a bucket of paint falls under industrial or retail can be ambiguous, leading to complexities in pricing and service offerings.
Industrial Freight Faces Persistent Weakness
For carriers like Old Dominion Freight Line, the persistent weakness in industrial demand has been a challenge for the past two years. With manufacturing activity contracting, the demand for industrial freight has remained relatively stagnant. This trend is in line with broader economic indicators, such as those from the Institute for Supply Management, which reported manufacturing contraction for nearly two consecutive years.
While industrial demand has been soft, carriers are cautiously optimistic about potential improvements heading into 2025. XPO’s Faghri noted that factors like lower interest rates and the conclusion of political events like elections could serve as catalysts to reignite industrial demand in the coming months. However, this recovery is expected to be gradual, and it remains to be seen whether it will be strong enough to return industrial freight volumes to pre-pandemic levels.
What This Means for the Future of the Supply Chain
For businesses in industries dependent on LTL freight—whether they are retail, industrial, or a combination of both—there are several key takeaways from this shift in freight demand:
Adapt to Shifting Demand: Companies in industrial sectors, particularly construction, agriculture, and manufacturing, should anticipate continued softness in freight demand for the time being. Businesses may need to adjust their logistics strategies, optimize inventory management, and explore new opportunities in retail or e-commerce channels to offset potential slowdowns in industrial shipments.
Leverage Retail Growth: Retailers and e-commerce companies should take advantage of the strong demand for retail freight by optimizing their supply chains and leveraging cost-effective transportation solutions. This might include consolidating shipments, exploring new distribution channels, or working closely with LTL carriers to secure favorable rates.
Monitor Economic Indicators: For both carriers and shippers, staying on top of economic trends will be crucial in navigating the future of freight. Watch for signs of industrial recovery, such as changes in manufacturing output, shifts in consumer spending, and macroeconomic policy changes. These factors will play a significant role in determining the future balance of retail and industrial freight.
Build Flexibility Into the Supply Chain: In a volatile market, the ability to pivot quickly is key. Retail and industrial businesses alike should work to build more flexibility into their supply chains, enabling them to respond swiftly to changes in demand and adjust to market conditions as needed.
Conclusion
As the LTL freight market continues to adapt to the realities of a shifting economy, the dominance of retail freight is likely to persist in the near term. For LTL carriers, this means rethinking service offerings, adjusting pricing models, and managing a more complex mix of customers. For businesses, it means staying agile and leveraging the opportunities presented by the strong retail sector, while preparing for the eventual recovery in industrial demand.
At Gain Consulting, we understand the importance of staying ahead of these trends and adapting your supply chain strategies to meet the changing demands of the market. Whether you're in retail, manufacturing, or another sector, we can help you navigate these shifts and optimize your supply chain for success in the evolving landscape.
About Gain Consulting: Gain Consulting specializes in helping businesses optimize their supply chains for maximum efficiency and profitability. Our expert team works with clients across industries to identify cost-saving opportunities, streamline operations, and navigate the complexities of logistics in an ever-changing market. Contact us today to learn more about how we can help you succeed.
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