2020 State of Logistics: Less Than Truckload (LTL)

The $46 billion less-than-truckload (LTL) market, like most of the trucking industry, is roiled from the devastating economic impacts of the COVID-19 outbreak.

According to Chuck Hammel, the longtime head of Pitt Ohio, the nation’s 16th-largest LTL carrier, the impact of the virus is the worst economic challenge in his career—worse even than the aftereffects of 9/11.

“We’re all dealing with the ever-changing conditions on the ground,” says Hammel. “Some of our customers are off the chart busy, while others are slower or closed down. I don’t think this is going to end anytime soon.”

Hammel adds that he has “no clue” how things eventually will shake out; however, he suspects the economic recovery will be slower overall while certain industries will boom. “I think there will be a new normal, much like we had after the financial markets collapsed 2008-2009 when the great recession started. The recovery there was also tough to predict, as evidenced by how many respected economists were wrong. So we all need to read the tea leaves.”

Leading carrier executives and analysts say that there’s an ongoing debate as to which sector will recover faster—retail or manufacturing—as most LTL carriers ideally enjoy a 50/50 split in revenue between the two markets.

Avery Vise, vice president of trucking for research firm FTR, is firmly in the manufacturing corner. “Manufacturing is not coming back as fast as consumer goods,” he says, adding that the state-by-state shutdown is adding some drag. “The patchwork shutdown is leading to a patchwork recovery.”

However, there are bargains for those shippers with negotiating room in the LTL market, which has perhaps 20% overcapacity. Large LTL carriers such as YRC operate expensive hub-and-spoke networks of hundreds of terminals with thousands of union-covered employees on the payroll.

“There is a ton of LTL capacity in the market,” says Brian Thompson, chief commercial officer for SMC3, a data provider that helps optimize LTL freight transportation across the supply chain. “LTL pricing has stayed rational, which is positive for the health of providers in the market,” he says. “But nobody knows how long the effects of the pandemic will last. These carriers have to keep revenue coming in, as they have too much overhead to simply turn off their costs when they hit a rocky market.”

Economists were hoping for a V-shaped economic recovery—a rapid slide down followed by a quick climb back. However, some are now calling for a Nike swoosh-shaped recovery in which output may not return to pre-pandemic levels until late 2021.

But recoveries don’t happen evenly, analysts say, and can take years. A recent survey showed that 81% of small businesses think COVID-19 could affect them for 12 months to 16 months. By some estimates, half of small businesses could fold within six months—likely causing one or more large LTL carriers to go bankrupt with them.