Chart of the Week: National Truckload Index Linehaul Only, Outbound Tender Volume Index – USA SONAR: LCWT1.USA, VCRPM1.USA
Less-than-truckload rates reversed course in June after trending lower this spring, in keeping with FreightWaves’ transportation invoice database. The move comes because the nation’s third-largest LTL provider struggles with coming to an agreement with the Teamsters over operational restructuring and the upcoming labor contract.
The directional shift comes as truckload contract rates proceed what has largely been a 12-month decline with no signs of hitting a floor. While it isn’t clear how much influence the recent Yellow struggles have had on the LTL rate swing, it’s a trend price noting nonetheless.
LTL rates have been increasingly volatile since last fall. This pattern existed in late 2019 because the trucking market was softening. That is attributable to the indisputable fact that rates develop into more polarized when the market softens as less efficient carriers get more aggressive while stronger operators will maintain rates thanks to higher service levels.
LTL rates typically take roughly six to 12 months to answer the truckload market. The sector is way less fragmented (competitive) than its truckload counterpart and due to this fact the carriers have more pricing discipline and negotiating leverage, especially on a national level.
Pulling the LTL versus dry van truckload contract rate chart out to a five-year view, the second half of 2019 became increasingly erratic before moderating and beginning to trend lower in 2020. Something similar has occurred over the past yr, but on a bigger scale due to the gravity of the pandemic era.
The recent uptick in LTL rates is difficult to tie on to Yellow due to volatility of the index and lack of sufficient period of time to measure. That being said, the index did jump ~20% within the second half of June, right after the Teamsters union announced Yellow was running out of cash. This can be a transparent divergence in what was a 60-day downward trend.
It has been widely reported that corporations are diverting their business away from Yellow to avoid the chance of losing their freight and avoiding service disruptions. Yellow reported a 16% drop in tonnage in April and May, indicating it was already losing business and potentially market share because it was the most important drop of the businesses that report on these figures.
With Yellow’s future in query, it puts upward pressure on rates as other carriers may not view this business as everlasting or something they will handle repeatedly. Due to this fact they’ll not be as aggressive on offering pricing, not less than within the near term. Yellow’s customers’ shipments will fall under a more broad (and elevated) pricing umbrella until there’s a more definitive agreement put in place with consistency around volumes.
Within the longer run, if Yellow does exit the market, it’s going to also put upward pressure on rates though potentially more muted than they might have been had this occurred a yr ago. Yellow has needed to drop rates to win business for years as a low-efficiency carrier — the explanation it has been pushing for restructuring.
This puts Yellow as a low-cost provider within the industry and if it shuts down, rates will naturally take a step up.
The service disruptions will get ironed out as there’s loads of capability out there — probably taking a number of months for the dust to settle — but LTL rates will get propped up if the sector loses a top three provider.
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