Why LTL Rates Are Increasing and Tips to Manage Its Cost
June 5, 2019
A Few Ways to Improve Your Supply Chain
Sure, pressure makes diamonds. But in some cases, it also spikes costs.
Trends in the supply chain industry continue to impact Less-Than-Truckload (LTL) freight rates. The driver shortage has caught up to the sector as many companies try and prevent high driver turnover, pressuring the market to increase wages and efforts to attract qualified candidates. This isn’t a new challenge as the U.S. driver shortage has been a topic in the industry for years. However, other factors have exacerbated the issue. The e-commerce boom, coupled with increasing fuel rates and equipment costs, has left a mark on the industry, causing rate increases to accelerate.
Rise of e-Commerce
Consumers’ appetite for online shopping has grown immensely over the years. E-commerce took a growing share of 14.3% of total retail sales in 2018, up from 12.9% in 2017 and 11.6% in 2016. Not to mention, online sales represented an astounding 51.9% of all retail sales growth in 2018, the largest since 2008. From a supply chain perspective, the effort to deliver small single-packaged orders across country to consumers is costly. LTL shipments now consist of irregular shapes and various-sized goods as opposed to mostly palletized trucks from the past, increasing carrier costs, which caused rates to rise between 4.9% and 5.9% in 2018.
With growing e-commerce popularity, shipping and delivery features become a major selling point for retailers. Customers not only want a prompt and seamless delivery process; they also want it to be free in a climate where market fuel prices are on the rise. The gradual increase of underlying costs, including fuel, remains a challenge for carriers and transportation companies as the expectation is to go above and beyond to deliver for consumers. More efforts (and money) are being allocated towards effective last mile strategies to accommodate these demands. For example, many carriers are investing in advanced technology to measure, weigh and track packages more efficiently. Such investments may be cost-effective in the future but play a pivotal role in market rate increases today.
For shippers, it’s important to understand how to optimize a supply chain while reducing overall freight spend. Here are a few measures to help alleviate these costs.
Consolidation involves combining LTL shipments with other companies that are headed to the same destination. This creates a full truckload, requiring suppliers to only pay for their share of the shipment. Product is then effectively delivered to the retailer on time thanks to a coordinated shipping calendar, known as a sailing schedule. This strategy is also beneficial to the retailer as more full truckloads arriving at their dock reduces congestion.
Freight typically endures multiple touchpoints as it navigates throughout the LTL network. This leads to a higher possibility of product being lost or damaged. For shippers, it’s important to seek a carrier with a direct loading network that can hold large volume. This streamlines your freight’s transportation and minimizes the possibility of something going wrong during the shipment.
It’s also advised for shippers to implement photo communication during the shipping/receiving process. Taking pictures of freight before it was loaded onto the truck, on the truck, and/or from the consignee and noting these observations on the delivery receipt enhances carrier liability. It may be a tedious task but can pay off significantly as you work with various partners who handle your freight. If a carrier falsely claims your freight wasn’t loaded and secured properly for shipment, you’ll be grateful of the attention to detail notated with picture verification that was taken to mitigate charges.
Establishing Strong Relationships with Carriers
Like many industries, supply chain is a business based on relationships and when it comes to shippers and carriers, constant communication is a must. Collaboration only works if both parties cooperate. Ensuring both parties are upholding their terms of the agreement helps so that when challenges arise, discrepancies can be clearly identified to clear up any misunderstandings.
Lastly, shippers that develop strategic, transparent and long-term relationships typically see a difference in their bottom line. A long-term contract with a carrier or working with an established provider with strong carrier relationships can yield better pricing as carriers plan their capacity around your network.
The supply chain climate is always changing, requiring players in the industry to have adaptable solutions. Cost pressures have surely left its mark on the LTL market, but if played right, this pressure can also be the opportunity that advances supply chain strategy.
A seasoned provider can help develop and implement this strategy in your supply chain to alleviate market pressures. Hub Group is here to help you through these complexities. Visit www.hubgroup.com/logistics-management/managed-solutions/ltl-freight/ for more information.
 Ali, Fareeha, et al. “US Ecommerce Sales Grow 15.0% in 2018.” Digital Commerce 360, Feb. 2019, www.digitalcommerce360.com/article/us-ecommerce-sales/.
 Palnik, Leah. “PartnerShip LLC.” Ship Smarter and Stay Competitive, PartnerShip, 2018, www.partnership.com/blog/post/factors-contributing-to-2018-ltl-rate-increases.