Both capacity and LTL freight shipping costs have been below typical levels recently. This has had obvious advantages and disadvantages for those in the freight shipping business, specifically those dealing with almost entirely LTL shipping. Of course, those shipping LTL freight know the freight industry never holds steady for long, and that includes shipping costs. In fact, LTL freight shipping costs have already started to rise.
LTL shipping costs typically have general rate increases (GRIs) on an annual schedule. For those paying attention to freight charges, shipping costs on LTL last had a GRI last fall. Since the industry is already starting to see freight charges increase, that means the GRI for freight shipping costs is early. It isn’t that the LTL rate increases are excessive, but shipping costs will add up over time with the extra months before an expected freight GRI. In the worst-case scenario, freight charges could undergo two rate increases this year, because if LTL demand goes up, so do LTL shipping costs. It’s not an unheard-of situation.
The rate increases for LTL freight shouldn’t be a surprise for players in the freight industry, though. It isn’t completely random. It isn’t just LTL shipping costs that experience these changes. Other areas have seen similar problems with freight charges. Truckload freight has also seen higher shipping costs. There’s also a chance that both LTL and truckload freight will be more closely connected than ever when the ELD regulations go into full effect for freight shipping later this year. But why is LTL seeing an earlier rate increase for freight shipping? Well, there are a few reasons for the shipping cost changes.
Carriers now have access to better shipping technology to make freight charges more accurate for LTL. Freight carriers can now determine what LTL shipments will be profitable, and where the freight charges aren’t worth it. It’s like the way shippers use data to reduce shipping costs. Additionally, carriers have better technology for LTL freight shipping to determine the space needed in a trailer. Dimensioning technology helps them provide more accurate freight charges and fit different loads into LTL shipments more efficiently.
The freight industry has been concerned about a shortage of truck drivers for a while. It being summer time isn’t a help for freight charges. Truck drivers often hold different positions in summer relative to winter, or they take time off while the weather is nice. Fewer truck drivers means less LTL space on trucks, and diminished freight capacity means higher shipping costs.
There are more ecommerce companies on the market than there used to be, and they increase demand for LTL freight shipping. Ecommerce companies will likely never need an entire truckload, so not all freight has higher demand, only LTL. This will increase freight charges for LTL space. This is amplified by the increase of free shipping. When customers don’t have to worry about shipping cost, they don’t hold their orders until there’s enough to make the shipping cost justifiable. People order more frequently rather than waiting, so there are more LTL shipments to make. The extra demand drives the increase in freight charges.
The freight shipping industry rarely sees the introduction of new LTL carriers. What is happening with these freight carriers, is they’re changing LTL freight operations. Carriers are merging or buying out others and changing regional LTL service areas. These changes can alter freight charges for places affected by LTL freight carriers moving their service boundaries.
A final reason for LTL freight shipping cost increases is the increase in manufacturing. If there is more manufacturing it means more freight shipping, both inbound materials and outbound products. The need for more freight shipping increases freight charges, particularly when there are fewer truck drivers with less LTL space.
There isn’t much that can be done in the freight shipping business to permanently avoid freight charge increases. LTL freight is no exception, but there are ways to lessen the burden of higher shipping costs. You can spare your supply chain some of the challenges by making use of shipping software like a transportation management system to uncover savings. Additionally, look for a transportation management system vendor that offers freight auditing. Freight auditing can uncover savings on your LTL freight shipments to reduce the impact of the freight charge increase. TMS shipping software and freight audit services are your best bet to compete with increasing demand and costs in LTL freight.