Sunset’s Director of LTL Pricing and Procurement, Steve Pandolfo, provides a brief update on the state of the LTL industry as we begin 2021. We move into a lot of uncertainty in the coming year, but a few items seem to keep trending in the same direction.
While 2020 proved to be a service struggle for everyone involved in LTL, 2021 will bring its own set of issues in regards to pricing. The bottom line is that carriers can only compete and improve their operating ratios one of two ways: either lower costs and losses or raise revenues.
Lowering costs is a lot harder, especially in today’s climate, and the results happen slower. Most carriers implement annual GRIs for non-contractual freight to absorb cost inflation, including driver and dockworker pay increases and ongoing investments in tech and real estate. In 2021, driver recruitment and retention expenses represent one of the biggest cost headwinds for carriers.
Old Dominion Freight Line announced a 4.9% general rate increase that will be effective March 1. The rate bump follows similar announcements from LTL carriers in recent weeks. The majority of the increases are in the 5% to 6% range, which is indicative of tightening LTL capacity and a rate-disciplined environment. Saia’s 5.9% rate increase began on Jan. 18 and ArcBest announced a 5.95% GRI for LTL services, effective Jan. 25. Yellow, formerly YRC Worldwide, implemented a 5.9% increase at the beginning of February and light LTL provider Forward Air installed a 6% GRI at the same time.
Rounding out the increases so far in 2021 were Estes Express (4.6%), Fedex Freight (5.9%), and TFI International, formerly UPS Freight (5.4%)
Insurance costs are also rising. “Nuclear verdicts” are settlements often over $10 million, resulting from serious crashes involving injury and/or death. One study found that nuclear cases are up 300%, so insurance carriers are raising rates to meet these costs. At the end of the day, higher operating costs often mean higher costs pushed to shippers or a further tightening of LTL margins. Raising revenues through rate increases is fast and easy. That’s why so many carriers are simply raising rates, rather than addressing business strategy on the whole. Expect rate increases on contractual business to be in the high single to double digits this year.
So what else can you expect in 2021? Well, transit service is at an all-time low. Transit is suffering because of a myriad of reasons which includes COVID, along with the age old worker shortage/equipment aging/capacity concerns. On-time results are only about 80-85% for national carriers and only slightly better with 85-90% for regional carriers, LTL carriers are deploying new, temporary business strategies to improve these on-time results that could impact customers: Refusal to handle overlength shipments (8’+), refusal to handle high volume (10,000+ lbs.) shipments, refusal to handle large skid orders (7+), refusal to handle lighter volume (low density) or high-capacity cube shipments, designated zip code embargoes, pricing cancellations resulting from low revenue, and reduction remote pick-up and delivery area shipments.
It’s an uphill climb this year for sure. Expectations with customers will have to be tempered a little while longer, but signs of the pendulum swinging back to the middle are on the 2022 horizon.