There’s no doubt the COVID-19 pandemic changed the way people work, live and shop. What’s becoming increasingly clear is that the trends accelerated in the last year—including the exponential surge in e-commerce and increasing adoption of omni-channel fulfillment—are here to stay.
In particular, the explosive demand for last-mile delivery will continue to remain higher than normal. Delivery speed at low- to no-cost to customers has become a necessity for shippers, which means a smart last-mile network is imperative.
With this in mind, strong relationships with less-than-truckload (LTL) carriers are now a key component in building that network. The increased expectations for last-mile delivery and more rapid placement of inventory has driven up demand for LTL services for delivery of relatively small, palletized freight.
However, LTL carriers have faced significant challenges over the past year:
Operation disruptions. LTL carriers were among the hardest hit in the freight transportation sector. According to a recent survey conducted by JOC, 41% of shipper respondents said that the pandemic caused significant disruption to their LTL shipping operations, while 39% reported moderate disruption.
The report also noted that the biggest issues with carrier performance revolved around on-time delivery and the pickup of shipments, in part due to LTL carrier capacity constraints. According to the report: “LTL carrier communication with shippers was flagged as a key issue with survey respondents citing problems with ‘overall response times’ to reports of ‘service problems,’ ‘slow problem resolution,’ and a ‘lack of proactive communication’ from carriers.”
Increased demand for products and services. The challenges in LTL carrier performance have come at a time when LTL customers are evolving their products and services, with most of these changes having an impact on pick-up and delivery locations or even handling requirements. These changes not only affect service levels, but can also put pressure on LTL pricing.
For example, the rise in “white-glove” delivery offerings have put LTL carriers under pressure to find drivers that can manage the physical demands with assembly and effectively communicate with the end customer in their home or business, especially when problems arise. Moreover, these specialized deliveries take more time, putting a heavy burden on LTL capacity as trucks stay idle while drivers are completing the on-premise delivery and assembly.
Changing networks for both LTL carriers and shippers. Another development that has stressed LTL carrier performance are the updates that shippers are making to their distribution networks to meet demands for direct-to-customer shipments—such as changing distribution networks to fulfill orders from multiple locations and moving inventory closer to end-customers. As a result, LTL carriers are being forced to change their own volume patterns and flow.
Overall market consolidation. On top of all these demands on LTL carriers, there’s an overall transformation and consolidation taking place in the LTL market at the same time. Major players are choosing to sell or spin-off their LTL offerings, while others are expanding their service regions and diversifying their portfolio of services. Shippers need to stay on top of the evolution of this market to take advantage of the more comprehensive LTL networks being built—and ultimately reap the benefits of LTL carriers’ efforts to improve efficiency, lower costs and enhance customer service.
As LTL carriers adapt and respond to these changing market dynamics, many of them have had to make relatively significant rate increases—in the range of 5% to 6% in recent months, which puts additional pressure on shippers. The good news is that there are ways for shippers to mitigate the impact of rate increases.
Three actions to solidify LTL relationships
We’ve outlined the following…