Trucking operators—both truckload and less-than-truckload—persevered through a freight recession last year that saw substantial declines in both shipment volumes and spending. According to the U.S. Bank Freight Payment Index, the fourth-quarter 2023 shipment volume was down 15.7% compared to the previous year quarter, while spending on freight services by shippers slipped by 13.5%—the largest drop in the index’s history.
As carriers close out 2024’s first quarter, business volumes remain weak, exacerbated by January’s severe weather, the traditional Chinese New Year slowdown, and businesses still shedding excess inventory.
“It is soft,” says Avery Vise, vice president–trucking for FTR Transportation Intelligence. “[Truck] utilization at this point is several percentage points below average. It bottomed out around summertime but since then has been relatively stable [though it] hasn’t improved much,” he’s observed of the truckload market.
“Looking ahead, the real X factor is whether we see any acceleration in departure of driver capacity in truckload,” Vise notes. He adds that while large numbers of very small carriers (one to five trucks) have been exiting the market, “for the most part those drivers have found homes elsewhere in the industry.” However, at the end of 2023, there were still some 100,000 more operating authorities (motor carriers with licenses to operate) on record than at the start of the pandemic. Vise forecasts truckload spot rates to be up 2% this year. Contract rates, on balance, he projects to be down about 3% in 2024.
Jason Seidl, managing director, surface transportation and logistics with investment firm TD Cowen, has a similar view of the market. “To be fair, it [truckload rates and volumes] can’t get much worse,” he says. “I think we will really get a test of the supply/demand mix as we come out of the Chinese New Year and get fully into the spring shipping season.”
COMING OUT OF A FUNK
While the market is in a bit of a funk, optimism does exist. In the company’s recent fourth-quarter and full-year 2023 earnings conference call, David Parker, chairman and CEO of Covenant Logistics, commented, “Hopefully, we are about to bounce off the bottom.” Covenant has been able to secure low single-digit rate increases from some customers, he noted. Yet he added “the folks that are in really commoditized environments … they’re trying to squeeze the last amount of blood out of the turnip.”
Parker contrasts that approach with the longer-term vision of what he calls “real partner” shippers, who recognize the importance of more enduring relationships with their carriers who are creating value for them, and the need to balance price with service value, even as the market swings back and forth. Reliable, consistent, cost-effective capacity is the goal. “They just want to move on with business.”
John Janson, vice president of global logistics for SanMar, is a strong advocate of the “real partner” approach. For SanMar, taking a longer-term view and striving to be a shipper of choice, in both loose- and tight-capacity times, has proved to be a successful strategy. SanMar is one of the nation’s largest distributors of branded promotional apparel and goods, operating 13 distribution centers, averaging 1 million square feet each, across the U.S.
“We focus on three factors,” Janson says. “Be a good steward of [the carrier’s] equipment and drivers, be consistent with business year-round, and pay your bills on time. Those three things make us a very attractive [customer] and help us lock in capacity at fair rates regardless of the market.”
Shippers who constantly shift their freight among carriers “chasing pennies,” or those who create detention issues for drivers, ultimately will find their freight sitting on the dock or receive unacceptable service, Janson adds. “We’re building sustainable relationships” with SanMar’s carriers, he stresses. “So we’re not going to drop them just to save a dime on [the spot market]. In return, we expect them to protect us [with ample capacity] when the market’s tight.”
Like many shippers, SanMar spent much of 2023 resetting its inventory levels as it worked down overstocks. A major importer from Asia, the company brought in 32,000 ocean container TEUs (twenty-foot equivalent units) in 2022. That dropped to 19,000 last year. “We were so out of balance we were not as good of a steward [of our carriers’ assets] as we could be. As we move through 2024, we’re reinvesting in those relationships.”
For SanMar, consistent on-time service is the ultimate measure. “You would not think there are a lot of T-shirt emergencies,” he says. “But our customers really rely on SanMar’s DCs and delivery consistency to support their product needs. So it’s imperative to keep transit times to one and two days.” SanMar uses R&L Carriers as its national less-than-truckload (LTL) provider, and Oak Harbor, Averitt, and A. Duie Pyle for regional LTL service in the West, Southeast, and Northeast, respectively.
LTL HOLDING STEADY
The LTL market got a shot in the arm late last summer when venerable less-than-truckload carrier Yellow closed its doors, dumping by some estimates about 50,000 shipments per day into the market. Within a week, virtually all of that freight had found at least a temporary home.
Yellow’s exit also presented a once-in-a-generation opportunity for remaining LTL carriers to acquire highly sought-after freight terminals, many of which are in metro areas where putting up new facilities is nearly impossible. Yellow’s network had some 300 terminals, of which 169 were owned. Virtually every major LTL carrier participated in the auction.
Among the beneficiaries was Estes Express Lines, which netted 29 additional facilities for its network, a combination of direct purchases and lease buyouts. “We were able to focus on our largest need opportunities,” says Webb Estes, the company’s president and chief operating officer. “We’ve added about 15% more door count to our network,” prioritizing cross-border capabilities as well as other key markets, like Reno, Nevada, where Estes, like many carriers, was “desperate for capacity.”
The added terminals are coming online at an opportune time, Estes believes. “Shippers are definitely looking for capacity. It feels like things are starting to rebound,” he’s observed. “The sentiment from many of our customers is that the worst is behind us.”
LTL carrier XPO also was an aggressive player in the Yellow auction. CEO Mario Harik reports that the company acquired 28 terminals, 26 of which were purchased outright and two that were lease assumptions. “We wanted to expand in markets where we were capacity-constrained and those that we had identified as growth markets,” he says.
XPO saw an incremental gain of 7% in shipments per day, nearly 4,000 shipments, from Yellow’s closure, Harik notes, adding that XPO was highly strategic and selective in what business it accepted. “We turned away some that didn’t operate well or didn’t fit our network,” he explains.
As for shipper sentiment, customers aren’t all doom and gloom, and instead seem to be signaling a possible upturn as the year proceeds. Harik notes that in XPO’s quarterly survey of its top 100 customers, two-thirds of respondents said they expect business levels in the first half of 2024 to be “flattish, while in the back half of the year, the majority of customers are cautiously optimistic we’ll see an overall pickup in demand.”
Overall, 2023, which was XPO’s first as a standalone LTL carrier, came in “solidly above expectations, reflecting substantial momentum in service quality, pricing, and productivity. North American LTL outperformed on every key operating metric,” Harik says.
At Old Dominion Freight Line (ODFL), Executive Vice President and Chief Operating Officer Greg Plemmons echoes Harik’s cautious optimism about the year, particularly prospects for a second-half uptick. “Our customers seem to be feeling the same way,” he shares. “Inventory levels appear to be normalizing. If we can get some clarity on interest rates and a course correction [on interest rate cuts], that would support our optimism and maybe [provide] a tailwind for the economy.”
As for the auction of Yellow’s properties, Plemmons noted that ODFL was one of the first “stalking horse” bidders, early on submitting a bid of $1.5 billion for the entire portfolio. “Then as the auction went on, we accessed additional information and details, and decided that our existing real estate strategy was better for us than going through the whole bid process,” he explains.
And while there are still some properties remaining, including some 100 lease sites that have yet to be claimed, Plemmons says ODFL is content to let the process play itself out. “Not all these properties will be utilized by competitors, so we may pick up some of those,” he notes. “But we play the long game when it comes to real estate. We feel good about our strategy. It was good before the Yellow event, and we feel even better about it now.”
This year, ODFL plans to spend $350 million on real estate, another $325 million on rolling stock and freight-handling equipment, and $75 million on technology, all with the goal of maintaining 25% to 30% excess capacity in its network. “The worm will turn,” he says. “This cycle will flip at some point, and we will be ready to capitalize on that to flex and grow with our customers.”
REGIONAL FOCUS PAYING DIVIDENDS
Back in 1994, family-owned LTL carrier A. Duie Pyle was a small Northeast regional carrier with one terminal. Thirty years later, the company remains “the only true Northeast regional carrier,” says John Luciani, Pyle’s chief operating officer for LTL solutions, but today it no longer qualifies as small.
Celebrating its 100th year in business this year, Pyle has grown into an $800 million company with a footprint of 29 LTL service centers and some 4,000 employees moving over 12,000 LTL shipments per day. Pyle also has a dedicated division with 60 clients and 600 drivers, as well as 18 warehouses with some 4.4 million square feet. It’s currently grooming its fourth generation of family leadership.
Pyle participated in the Yellow terminal auction, picking up four service centers: two in Pennsylvania, one in West Virginia, and one in New York. It also expects to get back a formerly leased terminal in Maspeth, Queens (New York City). By mid-year, the company expects to be operating 34 terminals in its core Northeast market.
While Luciani believes trucking in general is still feeling the lingering effects of last year’s freight recession, things are starting to turn. Last year was “the tale of two halves,” he notes. “The first half of the year, our bill count was down about 4%, but in the second half, [business] rallied and was up 7%.” He believes that bodes well for 2024, particularly the second half. Many companies “are still burning off built-up inventory,” so he expects restocking efforts to accelerate and create more freight opportunity as the year progresses.
The LTL space has capacity and rates are stable, especially for solid carriers with a record of quality service and low claims. Pyle’s strength, Luciani believes, is in its family leadership and a culture of respect and transparency with employees.
“Culture drives operating performance. Our mantra is treating others the way you want to be treated, and sharing our financial metrics so employees know how we are doing,” he says. That builds trust, which encourages “discretionary effort, that bit of extra that a driver, on their own, does to exceed the customer’s [expectations]. We work very hard to maintain and win the hearts and minds of our employees. They’re our biggest competitive advantage.”
OUT OF THE DEPTHS
The past two years have seen any number of carriers, large and small, struggle to survive, with many exiting the business. One that’s succeeding and growing despite a tough market is Roadrunner.
Following a restructuring that started in 2021, “customers are coming back,” says Chris Jamroz, Roadrunner’s executive chairman and CEO. As the company has rebuilt its metro-to-metro direct LTL service, “we’ve seen a lot of positive sentiment from shippers, viewing us as an underdog on the rise.” The company in January executed the largest expansion in its history, adding service in 135 new lanes, the result of a year-long planning effort.
Jamroz notes that the Yellow bankruptcy “bluntly disrupted” the market for a time, but “now shippers are going through a more thoughtful process of optimizing their shipping and carrier mix.” He expects the spring RFP (request for proposal) season to be “very active, with some freight increases but nothing that would scream freight recovery.”
OPTIMISM FOR “AN OK YEAR”
The easing of inflation, low unemployment, and some encouraging signs from the January Manufacturing Report on Business, published by the Institute for Supply Management, are all indications that a freight turnaround might be around the corner.
According to the report, the Manufacturing PMI (purchasing managers index) registered 49.1% in January, up 2 percentage points from the seasonally adjusted 47.1% in December. The report further stated that the overall economy continued its expansion for the 45th month after one month of contraction in April 2020. Among other positive indicators the report cited were growth in new orders, a contraction in backlogs, faster supplier deliveries, customer inventories that were too low and needed replenishment, and growing imports.
For Jim Fields, chief operating officer at LTL carrier Pitt Ohio, those indicators point to a 2024 that should be “an OK year, with things picking up in the second half.” The company last year expanded its capacity in some key markets, picking up seven properties from the Yellow auction. As well, Pitt Ohio was “really selective in what business we took on from Yellow. Some of the YRC freight just didn’t make sense for us. Low rates, movement in the wrong direction, difficulty to handle, or high claims experience are part of the consideration.”
Looking ahead, Fields sees ongoing challenges recruiting “really good” truck drivers and managing across-the-board increases in just about every expense category of running a trucking business. Technology will continue to provide opportunities to digitize and bring efficiencies to “back-office paper flows to streamline workflows and free employees up to do even more impactful things for customers.”
At the end of the day, “we’re all just working through yet another freight cycle,” Fields says. “The world continues to turn, and we still come to work every day with the goal of taking care of the wants and needs of our customers—one shipment at a time.”
