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b2ap3_thumbnail_Scan_20170318-185343_1.jpgThe following is my annual report on the state of the LTL Freight Industry in the United States and Canada.

Revenues Stagnated Again in 2017

Here are links to the top 100 carriers in Canada (http://www.todaystrucking.com/top100) and the top 25 LTL carriers in the United States (http://www.joc.com/sites/default/files/u48801/truck-tables_1_0.jpg).

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During the Great Recession, the LTL freight industry experienced a “near death” experience as declining freight volumes, excess capacity and falling rates conspired to dramatically reduce revenues and profits. The LTL market shrank from more than $33 billion U.S. at the peak in 2006 to $25.2 billion at the recession's trough in 2009. As we approach the mid-point of 2015, the fortunes of this industry look much brighter. Here’s why.

The industry has consolidated

Looking back over the past 25 years, only 4 of the top 50 carriers are still in operation. Over the past 10 years, there has certainly been a changing of the guard at the top. As noted in a recent Stifel transportation report, “Old Dominion has replaced FedEx Freight/Con-way Freight as the most profitable carrier in the industry. USF was bought by Yellow Roadway to become YRC Worldwide before it nearly went the way of Consolidated Freightways, Overnite became UPS Freight, Central Freight Lines went public then private, Vitran was sold in pieces, Saia sold Jevic (which then went bust), and Roadrunner acquired Dawes and Bullet to become the only national asset-light general commodity LTL carrier. The industry is more concentrated than ever . . . “

The report goes on to report that “the top-5 (U.S.) carriers have roughly 55% of the market. And those top-5 - FedEx Freight, YRC Worldwide, Con-way Freight, UPS Freight, and Old Dominion Freight Line - are all either historical disciplined pricers or have been burned in the past by their undisciplined ways or have no choice but to push price to improve margins.” The Canadian market is quite similar with TransForce, Day & Ross and Manitoulin dominating the LTL sector. Unlike the truckload sector, consolidation means more leverage and pricing power for the top LTL players.

Today’s LTL Carriers are leaner and meaner

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Freight costs have historically been calculated on the basis of gross weight in kilograms or pounds. By charging only by weight, lightweight, low density packages become unprofitable for freight carriers due to the amount of space they take up in a trailer or container in proportion to their actual weight.

Dimensional weight is also known as DIM weight, volumetric weight, cubed weight or density-based pricing. The concept of Dimensional or Cube Weight is gaining popularity in the LTL freight industry as a uniform means of establishing a minimum charge for the cubic space occupied by a carton or pallet. Three of the largest LTL freight carriers, UPS Freight, FedEx Freight and YRC introduced dimensional LTL freight pricing this year. Currently FedEx Ground only applies dimensional pricing to packages measuring three cubic feet or greater.  Effective January 1, FedEx and UPS will apply dimensional pricing to all packages.  

The implication of this change in pricing methodology has caught the attention of the media (see article in Wall Street Journal). Experts say the impact could result in increased shipping costs of 5 to as much as 25% - - - if shippers don't take action. This blog will provide shippers with a guide to prepare for the introduction of this LTL pricing methodology.

A Definition of Dimensional or Cube-Based Pricing

Dimensional weight is a calculation of a theoretical weight of a shipment. This theoretical weight is the weight of the package at a minimum density chosen by the freight carrier. If the shipment is below this minimum density, then the actual weight is irrelevant as the freight carrier will charge for the volume of the package as if it were of the chosen density (what the package would weigh at the minimum density). Furthermore, the volume used to calculate the Dimensional Weight may not be absolutely representative of the true volume of the shipment. The freight carrier will measure the longest dimension in each of the three axes (X, Y and Z) and use these measurements to determine the shipment volume. If the carton or pallet is a right-angled box, then this will be equal to the true volume of the package. However, if the package is of any other shape, then the calculation of volume will be more than the true volume of the package.

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