If LTL business is so lucrative, why are so many carriers not servicing the LTL market? 

By Eric Burke

Ranking only behind China, the United States is the world’s second largest e-commerce sales market. Thanks in part to the rise of the online retailer market, the freight industry has seen a steady uptick in volume from the effects of the Covid-19 pandemic. Trucking capacity struggles to keep up with rising demand, though. Last year’s peak season (2021) is a prime example of the clash between rapidly rising spot rates and quickly diminishing capacity. The spot market became a racetrack where buyers competed to secure capacity at the most affordable rate. With this concerning cocktail of capacity strain and truckload cost brewing in the background, logistics professionals search for sustainable, cost-effective solutions. One of the most effective solutions? 

LTL shipping.   

LTL (less than truckload) offers efficiency, flexibility, speed, minimized cost, and network routing to help offer an alternative solution to vendors facing these rising FTL (or full truckload) rates. But what is LTL? And, as one of the most effective solutions, why aren’t more carriers servicing this market?  

In a general sense, LTL can be intimidating for first-time shippers who are not familiar with the rules and regulations as they can differ in many areas. For example, LTL requires a lot more information as opposed to FTL. Like parcel shipping, LTL is heavily reliant on what other industry professionals call PLD (Package Level Details). Length, width, height, and weight are all essential elements when quoting an LTL shipment. Pricing analysts working in this space require that this information be included when reviewing an order. If not, they cannot be certain as to how much space an order will take up in a truck. With LTL, you are sharing space with several other shipments (typically 6 on average). Space is finite and the successful carriers know how to maximize it in combination with mitigating the risk of damage.  

Network:

Above is a basic diagram of what a standard LTL network looks like. You have a group of shippers in a general area that all have product that needs to move from Dallas to Chicago. What will happen is Mr. Local Carrier is going to make his stops on his order log to pick up each shipment inside his area. Once collected, he will bring all the loads on his truck back to his home terminal. LTL carriers have multiple terminals either throughout a state or region for the regional carriers, or nation wide for national carriers. Once at the terminal, the truck is offloaded and cross-docked to a linehaul driver’s truck that’s sole purpose is to take cargo across state lines to other terminals. Terminals can have a few dozen to a few hundred docks, so depending on where these shipments are going, they will be loaded onto that destination city/state’s linehaul truck. Now, in this example these shipments are all going to Chicago, so they will all be loaded onto the same linehaul trailer to which once the carrier reaches their destination terminal, the process flows backwards. The trailer is unloaded and either cross-docked or stored in the terminal until the local carrier driver can make his round of deliveries.  

Obviously, this is a bit more of a complicated operation than a traditional FTL shipment making single destination deliveries (or occasional multi-stops deliveries for one customer). This is where that PLD then comes into play.    

Pricing: 

There are several elements involved with the pricing of LTL freight when compared to FTL. For starters, the industry standard for LTL rating is a class-based system. There are eighteen LTL classes that range from 50-500. What determines a shipment’s class is a combination of ease of handling, stowability, liability, and density. The greatest emphasis being on how dense the shipment is. The higher the density, the lower the class, and the lower the rate.  

Confusing right? Traditional thinking would lead you to believe a heavy shipment would be much more expensive because of fuel and other factors, right? Well, not so fast. Remember the other factors in play for pricing, along with how it’s transported. These are several different pallets, stacked together and unless specified otherwise, on top of one another in a trailer hitting five to nine stops each load. This is where liability and risk come into play. 

Let’s do an example. Let’s say there are two shipments, shipment A and shipment B. Shipment A is a standard pallet (48x40x48) of bricks traveling from Dallas to Chicago. Shipment B is the same dimensions, traveling the same lane, but shipment B is a pallet full of boxes of ice-creams cones. (Now, let me clarify that no carrier in their right mind would load such things together). Nevertheless, all the shifting and bouncing around that can occur during transit warrants concern. Hence, the importance of well-packaged dense freight.  

Claims: 

Even though heavy, dense freight is the cheapest and preferred cargo to service for LTL carriers, other freight is inevitably booked and loaded onto a trailer for the right price. Shippers should be aware that with how much freight changes hands through the LTL lifecycle, damage can and does happen. Hence, the importance of ensuring your freight is shrink-wrapped and protected to the best of the shipper’s ability. It’s also important to communicate how a shipper’s freight is packaged when talking to your local logistics professional. It’s their job to help guide the shipper and recommend other precautions when selecting their LTL network. Liability risk is baked into an LTL price, and carriers have their predetermined limits of liability should anything go wrong. Cargo value should always be discussed in conversations with your logistics professional, as purchasing additional insurance for coverage can help with financial peace of mind.  Again, PLD (Package Level Detail) is essential to ensure the shipper’s freight is in the best hands when evaluating fulfillment options.  

Allow me to circle back to the question posed in the title of this article. If LTL business is so lucrative, why are so many carriers not servicing LTL market? In short, it comes down to four words: 

High barriers to entry.  

From the expansive network of terminals to sheer fleet size, LTL is an expensive market to break into. Fewer and fewer carriers are entering that space today, and the major players consolidate a great percentage of the market share. A 2021 report mentions how the top 25 LTL companies dominate most of the revenue in this space. Economies of scale are the sole function of how these large companies dominate the LTL market.  

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