Disparity Between US LTL & Truckload Pricing Widens

 In Industry News, Trans-Border Global Freight Systems, Inc.

May 16th 2024 – US truckload and less-than-truckload (LTL) transportation costs for shippers both increased by 0.6% in April compared to March, but the similarities end there. LTL pricing surged by 8.2% year-over-year for the month, recovering from its recent low in April 2023. In contrast, truckload costs decreased by 4.4%, according to the US Bureau of Labor Statistics’ long-distance LTL and truckload producer price indexes (PPIs) released on Tuesday.

This widening pricing gap highlights the divergent paths of the two major for-hire trucking sectors, with LTL experiencing significant growth while truckload remains in a prolonged slump.

The divergence is driven by supply and demand factors that will likely influence shipping costs and shippers’ decisions throughout 2024 and into 2025. Shippers may seek to consolidate more LTL freight and capitalize on lower truckload rates when opportunities arise, according to carriers and analysts.

LTL capacity tightened significantly last year following the abrupt collapse of Yellow, the third-largest US LTL provider by annual revenue. Several shippers reported that LTL carriers were “bullish” during annual contract negotiations in the first quarter, aiming for high single-digit percentage increases in contractual renewal rates.

April marked the fourth consecutive month of sequential increases in LTL pricing. The LTL PPI rose by 2.3% in January, 0.8% in February, 0.5% in March, and 0.6% in April, leaving the LTL PPI just 4.6% below its all-time high in June 2022.

Conversely, truckload carriers lack the catalysts driving LTL pricing. Truckload capacity remains plentiful despite the loss of nearly 36,000 carriers since December 2022, and spot pricing has been stabilizing since June last year.

Annualized contract rate reductions in the truckload market have ranged from 3% to 5%, as reported by shippers to the Journal of Commerce, and this downward trend is reflected in the PPI. The truckload pricing index has fluctuated between 171.9 and 178.7 since June 2023, following a 24.8% drop from its peak of 232.5 in May 2022. Despite nearly a year, the truckload PPI remains 24.9% below its 2022 peak.

However, the decline in truckload pricing is slowing, with April’s 4.4% annualized drop down from a 7.7% decline in March and a 10.3% drop in February. If current trends persist, the truckload PPI may level out year-over-year by June and could turn positive in late 2024 if freight demand increases. Without a significant volume boost, “positive” will remain relative, with pricing likely to rise slowly from previous-year levels.

With truckload rates stagnant, some shippers are shifting a portion of their freight from higher-priced LTL to truckload carriers and shipper-owned private fleets.

“Our sophisticated national account shippers are likely figuring out ways to move more of their product via truckload to take advantage of the favorable rate environment,” said Douglas Col, CFO of LTL carrier Saia, during an April 26 earnings call.

Any palletized freight diverted to truckload is expected to return to LTL trailers once truckload rates begin to rise, he added.