What should LTL carriers expect in 2020?

Less-than-truckload (LTL) carriers can rest easy knowing the market unrest that characterized 2019 will not be following them into the new year. The excess supply and softening demand that disrupted the market last year has stabilized, minimizing dramatic rate changes. 

Donna Kintop, senior vice president of Client Experience, North America at DDC FPO (of The DDC Group), predicts a less volatile market throughout 2020.

“LTL and FTL carriers will probably strike a much more even balance in the amount of volume they carry and rates they offer. There seems to be a lot less volatility this year,” Kintop said.

FreightWaves market expert and analyst Zach Strickland recently sat down with Kintop to discuss the mellowing markets. 

LTL Update: What should LTL carriers expect in 2020? from FreightWaves on Vimeo.

“Last year, everyone was predicting a recession at the end of 2019 heading into the new year, but we’re really not seeing that,” she said. Kintop also noted how 2018 was particularly rough for both of these segments. 

2018 was a tumultuous year for everyone in the logistics industry, to say the least. The first half of the year was characterized as a bull market unseen since deregulation in the early 1980s, with load volumes exponentially greater than trucking capacity. 

The latter half of 2018 told a different story, however, with combined effects from government mandates, hurricanes and corporate tax cuts. In a five-month span from June to October 2018, tender rejection rates dropped steeply from 25.6% to 12.8%. 

Pictured: 2018 U.S. Outbound Tender Reject Index (SONAR chart: OTRI.USA). The first half of the year was characterized by exceptional load volumes greater than capacity. The latter half, however, saw volumes trend downward.

Unlike the ups and downs of the previous year, 2019 was marked by a continuous downward trend in rates, sinking under 6% in June. Rates spiked for a short period of time in December before dropping again at year’s end. 

“The winter peak was higher than the summer peak. This is a sign that we’re cyclically moving higher heading into 2020,” said FreightWaves’ Director of Freight Intelligence, Zach Strickland. 

After moving from an overheated 2018 to a cyclical contractionary period in 2019, December’s peak is a good indicator that the market has left the depressionary state. 

“There was a little bit of a softening, but nothing really significant,” Kintop explained.

SONAR’s U.S. Outbound Tender Reject Index (OTRI.USA) measures market capacity. The chart moves closely with spot rates and provides a good representation of the state of the market. 

OTRI.USA has tracked the decline in outbound tender rejection rates since January 2018 and currently shows rates staying steady around 7% throughout the month of January.   

Pictured: U.S. Outbound Tender Reject Index (SONAR chart: OTRI.USA) from January 2018 – January 2020. Outbound tender rejection rates have remained in a constant downward trend since mid-2018. December’s peak in rates may indicate a positive change in market trends is on the horizon.

“The way we measure the cycles is by looking at the peaks and valleys of the spot market and tender rejections,” Strickland said. “When those tender rejections peak at higher points or drop to the deepest lows, we then make conclusions that cyclically we are moving up or down versus the previous cycle.”

Although Kintop predicts smooth sailing for 2020, she recommends carriers prepare themselves for the off chance that economic and political climates do turn sour. She suggests companies focus more on automation and invest in their workforces by focusing on improving employee skills and talents.

“[Carriers] can continue to manage capacity. That will help balance the rates a bit,” Kintop said.

“We’ve got the election coming up this year, and people are concerned with trade wars and tariffs, but if those things remain relatively stable, we should have a pretty smooth year going forward,” she said.

Donna Kintop joined DDC in October after previously serving as vice president of EXL, a New York-based outsourcing service provider. Kintop also served as vice president of Ocean Air Transport, for which she oversaw the freight-forwarding company’s handling of both domestic and international freight.