Strong industrial and retail economy, as well as tightness in capacity due to the lack of any new entrants in the past 10 years, has the once-beleaguered LTL sector poised for one of its best profit years since at least 2004, industry executives and analysts told Logistics Management magazine.
“For the foreseeable future, pricing is more important than volumes,” James Welch, CEO of YRC Worldwide, told LM. “What’s going to be interesting with fuel prices dropping, will that improve consumer spending and tighten capacity even more? It’s too early to tell. But there’s a lot of emphasis on base rate adjustments matching price with a shipper’s particular volumes.”
Furthermore, the methodology by which LTL carriers are charging for their services is about to change, states LM. Major LTLs are in the process of implementing dimensional pricing – or, “dim pricing”—to charge more by the volume a package takes up in a trailer as well as its weight and distance traveled.
“We’re the only piece of the transportation industry that doesn’t price by dimension,” Welch said. “Ocean, air, parcel, they all do it that way. We’re trying to get ourselves ready. We are gathering the phases together.”
“At the end of the day, what are we selling? It’s space on a trailer. Dim pricing is the best way to sell. I don’t know precisely when the LTL industry will convert, but I have to think it’s coming.”
David Ross, trucking analyst for Stifel Inc., said that continued tightness in truck capacity means LTL margins should again increase in 2015. The one risk of higher rates is that some freight could gravitate to third-party logistics companies (3PLs), Ross said. Those third parties control as much as 20 percent of LTL freight already, and have enjoyed considerable pricing power over the past few years.
