To echo what we said in our TL Rate Outlook article last week, transportation professionals have seen tremendous price and capacity volatility over the past few years, and the LTL industry has not been immune. LTL carriers have historically maintained good pricing discipline and have consistently put out annual General Rate Increases (GRIs) in the 3-8% range. Those GRIs typically apply to non-contract shippers, but LTL carriers will also approach all their contract customers for annual increases too. Those negotiated increases usually range somewhere below the GRI levels (i.e., 3-5%). In a typical year, most prognosticators (myself included) would simply say expect a 3-5% increase and probably get pretty close to actuals. However, this year feels a bit different.
According to the TD Cowen / AFS Freight Index from January 2025, the LTL cost per shipment decreased in Q4 vs Q3 2024 by 1.3% and there has been a steady decline in the cost per shipment throughout 2024. We should note that fuel surcharges have decreased for the carriers and that is certainly a contributing factor in the cost per shipment decline. Fuel surcharges are considered top-line revenue for an LTL carrier. However, when you consider that the weight per shipment only slightly declined, it may signal that some cracks are forming in the carriers’ pricing discipline.
Factors impacting LTL pricing discipline
Whether these cracks get larger or disappear is directly tied to demand. In addition, several other factors could have an impact on pricing this year, which we will discuss below.
The industrial segment, which has historically made up two-thirds of LTL shipments, has strong fundamentals going into 2025 and there is some opportunity for growth. The LTL industry needs this segment to grow to spur demand and it could come from things like nearshoring, updating old infrastructure, and technology. However, the factors below have had and will have an impact moving forward, and they could be the fly in the ointment.
- Yellow Freight: When Yellow ceased operations in 2023 and their capacity was removed from the market, it spiked demand for other LTL carriers. It allowed LTL carriers to increase pricing even though the overall market demand was down. Now, carriers have been buying Yellow’s assets & terminals adding that capacity back into the market. This investment now heightens the need for increased demand.
- FedEx: With the planned spinoff of their LTL operations within the next 18 months, FedEx could be a disruptor this year. To attract new investors, FedEx must turn around their revenue slide. According to FedEx EVP and Chief Customer Officer, Brie Carere (Campbell, 11/12/2024, Retail freight still outpacing industrial for LTL carriers, TruckingDive), they are moving forward with hiring 300 sales professionals in short order and implementing an improved pricing system. This approach could widen some of those pricing cracks depending on how aggressively they price for growth.
- Freight Classification Changes: The National Motor Freight Classification (NMFC), which is the standard for identifying freight class, will be introducing changes in July 2025 that will have an expanded density scale impacting over 40% of products shipped. It will have an impact on shippers’ costs both positively and negatively. LTL carriers are evaluating these changes very closely and as a shipper, it is important that you do the same. If you don’t, you will be at a disadvantage when discussing rate increases with LTL carriers, and you won’t understand the impact of the changes to your costs.
Another trend is the movement to density-based pricing. It has been something that the LTL industry has been talking about for years and appears to be gaining traction. Like the NMFC changes, it is a positive change that will more accurately cost freight, but shippers need to understand how it impacts their costs, or it could negatively affect them. An additional factor that will impact LTL pricing is the improved pricing systems that LTL carriers are deploying. With the introduction of AI, these price models are getting more sophisticated and better able to model their costs. This enables carriers to pinpoint where they need price increases.
Predictions and how you can effectively navigate LTL in 2025
Given all the factors impacting LTL in 2025, coupled with an uncertain industrial market (but one expected to grow), it is difficult to say where the rates are headed for LTL. Using the old adage that the truth lies somewhere in the middle, we believe that the LTL carriers’ pricing discipline will have pockets where cracks will form, but ultimately, the carriers will not break. So, we are still predicting an increase for LTL freight but a lower increase this year than what we normally see – a 1-3% increase as opposed to the 3-5% we would normally expect – and opportunities will exist to negotiate.
This year is unique though because of the above factors, and if you want your LTL shipping to be successful in the long run, we recommend the following:
- Master Data Management: If you do not have good master data related to the products you are shipping, it could create inaccurate cost estimates, rework, and strained carrier relationships when the new NMFC density-based classifications go into place or if you are shifting to density-based pricing. It will also be difficult to assess the overall cost impact of these changes (which every LTL shipper should analyze). We would recommend making sure this product information is accurate and up to date in your systems. It will enable you to more accurately cost your LTL freight and understand the NMFC & density-based pricing impacts, while offering benefits in other areas like transportation planning.
- Partner with your LTL carriers: Most LTL carriers have sophisticated cost modeling tools that are only getting better. The carriers will most likely understand the cost drivers in your business better than you do. Ask them for the cost impacts and work with them, where possible, to eliminate or reduce costs. An open dialogue built on trust with your carrier can be a win-win for both parties.
There are many 3PLs and Consultants offering shippers help on how best to maneuver this environment. These resources can be helpful, but it is important to choose an impartial partner who will have your best interests in mind. Data is king in LTL, so focus on the quality of your data first. If you don’t have good data, your decision making will be directional at best. Wishing you a successful 2025!
This is the second article in a series from the North America Transportation Practice, to read the first in the series by Kevin Zweier, please visit 2025 Truckload Rate Outlook: Navigating the Road Ahead – Argon & Co
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