LTL pricing looks to be in line with current market conditions

鉴于the decent health of the economy, specifically the freight economy, it comes as no surprise to see theless-than-truckload (LTL)market having a strong 2018.

It also comes as little surprise to see that one of the major LTL players,Old Dominion Freight Line,announced a general rate increase (GRI) today of 4.9%, which takes effect on June 4. This GRI, said ODFL, is for its existing ODFL 559, 670, and 550 tariffs.

“At Old Dominion, we are committed to delivering our superior value proposition of on-time, claims-free service at a fair price,” said Todd Polen, Old Dominion’s Vice President of Pricing Services, in a statement. “In order to satisfy our customers’ expectations and deliver on the promises we have made, we must continue to enhance our high-quality service network and systems. Our GRI will affect our class tariffs and is intended to partially offset the rising costs of new equipment, real estate, technology investments, and competitive employee wage and benefit packages.”

Although the GRI will impact each customer differently based on specific shipment lanes and distance traveled, Polen said it is consistent with ODFL’s long-term yield management philosophy, with the overall impact of the increase is anticipated to be approximately 4.9 percent, he said, adding that the GRI also provides for a nominal increase in minimum charges with respect to intrastate, interstate and cross border lanes.

In a recent interview withLM,ODFL President and CEOGreg Ganttsaid that with capacity tight and the economy strong, it is kind of a “perfect storm” for carriers, with the pricing environment is in the carriers’ favor today, much more so than the flatter economy back in 2016 and early 2017.

“I think we are all in a better position,” said Gantt. “We have always tried to be very firm with our rates and our pricing strategies and certainly want to be fair to our customers. Back in the last recession in 2009, a lot of our competitors were cutting rates. We did not do that. In some cases, we would do things for business we did not want to lose, but we did not participate in that rate cutting game. We tried to be firm but fair and lost business because of that, but when things came back what we saw was our customers that stuck with us appreciated us, because what happened after that was the boom started back up again in the years to follow. And we saw those same carriers that cut rates like crazy going after huge, unreasonable increases. We did not have to do that, because we did not butcher the rates and did not have to take unreasonable increases. It felt like it made much more sense to be consistent, and in the long run it did not make sense to lower rates like others did.”

Gantt’s comments, in some ways, can serve as a proxy for the sector and its approach to pricing. But before taking that line of thought, it is important to remember that ODFL, by many metrics and anecdotal evidence, is one of, if not the best, LTL carriers anywhere. That is always a theme around earnings time for those not so sure.

It is not just OFDL making GRI announcements either. It is their competitors, too, with heavyweights like UPS Freight rolling out a 5.9% GRI that took effect in late March, and FedEx Freight rolling one out late last year to the tune of 4.9%.

Keep in mind that these GRI announcements are not the be all-end all when it comes to LTL pricing. Industry analysts have frequently stated that LTL GRIs typically impact 20-40 percent of LTL business.

That has been made very clear in the past by Satish Jindel, president of Pittsburgh-based SJ Consulting, whom has told LM over the years that regardless of which way the economy goes, LTL GRI’s have seemingly gone the way of a “broken record.”

Even though LTL carriers announce GRI hikes every year, they are clearly becoming meaningless because they cannot seem to show it on the bottom line, he said.

For the larger carriers like FedEx Freight and UPS Freight, he noted they typically have operating ratios in the mid-to-high 90s, with GRIs not aiding them in any meaningful way. But smaller carriers that are efficient and well run, like ODFL, usually have lower, and better ORs more often than not.

In any event, whether the LTL pricing is done through a GRI or is on a contract, market conditions related to pricing are on solid ground, which is something that resonates in industry circles, especially when expectations for a strong LTL carrier pricing environment were expected throughout the industry earlier this year.

To be sure, this is not solely a pricing-related occurrence. It has more to with a combination of factors that all are good for carriers, including pent-up demand, increasing volume of e-commerce deliveries, and tight capacity due to an ongoing driver shortage and regulatory drag, too.

这些趋势图继续,商店uld the economy grow more and capacity tightens up even further. And for carriers that is a good thing, especially when factoring in the many fixed costs that come with operating a fluid LTL network, including things like terminal costs, equipment, fuel, and labor among others.

The cliché “this is where the rubber meets the road” seems somewhat appropriate when viewing the state of rates in the LTL market . Where things go on the pricing road from here will be an interesting ride for sure.