2020 really is a year unlike anything we have seen or experienced, and as market conditions fluctuate in less than truckload (LTL) and truckload (TL) shipping, it can be hard for business owners or operators to keep up with changes. The freight industry market conditions change for a variety of reasons, such as economic situations, legal regulations, driver shortages, capacity issues, sudden public health emergencies, weather conditions, seasonality and more. However, understanding these changes or updates in market conditions can help you build a strong shipping strategy and identify holes in your current shipping needs. Below, we break down some of the factors that shape LTL and truckload trends.
What Are the Differences in Less Than Truckload and Truckload Shipping?
First, it’s important to understand the key differences between LTL and truckload shipping. Depending on what cargo you are shipping and what your specific shipping needs are, you may find that one type of shipping works better for you than another. And these differences go deeper than just size restrictions or a different list of carriers to choose from. Both the LTL and TL shipping markets are molded by a number of factors and industry trends that will impact the way you ship and what you have to pay. Here’s what you need to know:
With LTL shipping, your freight shipment shares space on a truck with other shippers’ cargo. Think of it like a ride share for freight. When you choose LTL shipping, your shipment doesn’t need a full truckload to be transported. Generally, LTL freight shipping follows these guidelines:
- Shipment is palletized or crated to reduce shipping rates and help avoid damage.
- Freight rates are determined by weight and dimensions to increase load capacity.
- Cargo weighs 150 pounds or more and is too large for parcel shipping but too small for full truckload shipping.
Factors that Impact LTL Freight Rates
There are several interconnected factors that impact LTL freight rates. Making a slight error in one or more of these LTL freight rate factors could mean a costly billing adjustment. So, what are these factors?
- Weight and Measurements – Accurate freight measurements and weight for your LTL freight shipment is vitally important. Carriers will always weigh and measure your shipment using their sophisticated equipment once they have picked up your shipment. Any discrepancies in weight or measurements between what the customer reports and what the carrier reports will result in a billing adjustment to the customer.
- Density – The denser your shipment is the better. That’s because dense shipments take up less space on a truck. For example, shipping 50 pounds of feathers would cost you more money than shipping 50 pounds of bricks because you would need more boxes of feathers (which are less dense) than you would need boxes of bricks (which are denser). More space means higher cost.
- Freight Classification – The National Motor Freight Traffic Association created freight class to help categorize and rate different types of freight shipments. These classifications are based on several factors, including density, stowability, value, handling and liability and ensure standardized, unbiased pricing when shipping freight.
Here’s how the above LTL freight rate factors are connected. The weight of your shipment impacts what the shipment’s density is, which in turn dictates what freight class your freight will be.
LTL Shipping Trends
The LTL shipping industry has seen recent growth due to an increase in eCommerce sales and tighter capacity as a result of COVID-19 restrictions. As consumer demand shifts to an online shopping experience, many small businesses are responding by moving to online stores which has led to an increase of online sales. Because of this, small to medium sized businesses will have an increasing demand for LTL shipping services to ship their products to their customers.
Additionally, LTL shipping services are expected to increase for people needing moving services. This increase is due to fragile or hard to move items needing to be moved in a more secure fashion than with a typical moving company.
As the LTL shipping industry continues to adapt to these changes, it is expected that LTL shipping services will improve or be expanded.
With truckload shipping, your freight shipment requires the use of the full truck trailer or the full truckload. Generally, full truckload shipping is used when you’re shipping:
- Heavy machinery.
- Very large or oversized items.
- 10 or more heavy loads of palletized shipments.
- Shipments that are 15,000 pounds or more.
- Large shipments that need the entire trailer space (meaning they don’t share space with other shipments).
Factors that Impact Truckload Freight Rates
There are a few important factors that impact truckload freight rates. In fact, over the past few years, truckload freight rates have fluctuated significantly and with all the factors that influence pricing, it can be a challenge to nail down exactly what causes such big swings. However, there are some common factors that impact truckload freight rates, and those include:
- Supply – In general, supply is impacted by the number of available drivers and the availability of equipment. If drivers or equipment is unavailable or in short supply, that will impact truckload freight rates.
- Demand – The demand for a truck depends a lot on the overall economy and what the needs of the shippers are. Demand for trucks depends on factors such as shipping large amount of inventory, construction or housing needs, automobile production and more. These types of large items require a full truckload, but during hard economic times, these items may also be in short demand.
- Fuel Prices – Because the cost of fuel changes rapidly, it can mean higher fuel surcharges for the truckload customer. However, it’s very hard for truckload carriers to predict how much the fuel price changes will be.
Truckload Shipping Trends
The truckload industry has seen fluctuations, and this is likely due to the economic impacts created by COVID-19. Some of the biggest market fluctuations in the truckload industry happened in the contract and spot rates.
Contract rates are an agreed upon rate between the shipper and the carrier for a specific origin, destination and estimated volume of the shipment. Typically, contracted rates are non-binding and can be broken by the shipper or carrier at any time. Additionally, contract rates make up around 80% of the truckload market.
Spot rates are based on the need and availability of trucks and are used more for one-time load volumes for certain origins and destinations. In addition, spot rates make up the remaining 20% of the truckload market, and they are considered much more volatile than contract rates.
Currently, spot rates are catching up with contract rates, which rarely happens. The lane of Los Angeles to Atlanta, which is a main lane along with Los Angeles to Dallas has doubled and tripled in carrier spot rates from a little over a month ago and continues to rise.
Other Shared Factors that Shape LTL and Truckload Trends
While there are certain LTL and truckload-specific trends, there are also many shared industry trends. Some of the shared factors that shape LTL and truckload trends include:
- Driver Shortage – Not having enough qualified drivers means fewer people to drive freight trucks. This driver shortage could be happening due to current drivers reaching retirement age and new regulations.
- Electronic Logging Device Mandate – Also known as ELD, this mandate requires all trucks have an electronic logging device, which is designed to track vehicle operation and driver activity.
- Weather – This comes as no surprise, but bad weather or other natural disasters often disrupt normal shipping operations and cause delays.
- Increased eCommerce – More and more consumers are shopping online, so eCommerce sales and shipping has also increased. That means more demand for LTL and truckload shipping.
- Manufacturing Growth – The manufacturing industry has also seen a steady increase in growth and has increased the demand for the trucking industry.
How Do You Know Which to Choose?
Choosing between LTL shipping and truckload shipping will depend on a variety of factors, such as how large or heavy the cargo is, how much space your shipment needs and other factors. We can help you determine which option is best for your shipment.
Working with a shipping partner, like FreightCenter, helps you quickly identify what the best shipping option is for your business shipping needs. Our highly trained freight experts can guide you through the process and answer your questions. With a variety of LTL and truckload shipping carriers at your fingertips, you can choose the carrier that best fits your needs quickly and easily.