North America’s resilient LTL market

For or several years now, Less than truckload (LTL) has generally been North America’s fastest growing trucking segment, driven in large part by strong and continued e-commerce growth in the region. Rates have also steadily increased over the same period. The pandemic, while causing severe contractions in other trucking segments, left the LTL segment relatively unscathed, bailed out by increased online retail volumes as consumers made purchases while staying at home.

The start of 2022 however is beginning to show signs of an e-commerce cool-down following its pandemic boom. With many economies now opened up, a portion of this can be explained as consumers returning to spending at physical stores, however inflation and consumers managing their reduced disposable income have also further slowed online sales growth. US Census data does show a provisional Q1-22 e-commerce value growth of 6.7% year-on-year, however much of this can be attributed to considerable price rises, likely leaving little real volume growth behind.

Despite this, the North American LTL providers are reporting some of their strongest ever results in 2022, reporting both volume and rate increases, with similarly bullish outlooks for the rest of the year. Old Dominion Freight Line has seen LTL revenues grow by 33.0% in the first quarter of 2022. XPO’s North American LTL segment has grown 14.9% in Q1 and has raised its targets for the year following a more optimistic outlook for the market.

This is in contrast to the truckload market, where there are some expectations of a softening of demand and rates in the second half of 2022, caused by the declining economic environment and the addition of more capacity into the truckload market.

Demand from e-commerce may be waning, but demand from other sectors which rely on LTL operations are increasing. Inventory levels are low and strong growth in the manufacturing sector are keeping demand high. The automotive sector is particularly important in LTL, and the continuation of its recovery from the pandemic has been significant. Federal Reserve data on domestic automotive manufacturing in the US has shown that manufacturing of motor vehicles and parts has continued to grow 6.6% year-on-year in the first half of 2022, following a 9.0% growth in 2021.

Trucks and drivers are being added to the LTL market; however, the rate of which is not sufficient enough to keep up with the growth in demand from these other sectors, generating further rate increases. In addition, LTL capacity will remain limited due to its reliance on other infrastructure, such as cross-dock nodes and terminals. This will enable LTL providers to maintain their control on rates.

There are now expectations of all-time highs in LTL rates during 2022. Pricing in the LTL segment is also affected by higher fuel surcharges, and so ever-increasing diesel prices are exacerbating rate increases even more.

With demand, capacity and rates all set to continue their growth through the year, the LTL market is thus likely to remain the fastest growing segment of North American road freight for the foreseeable future, with e-commerce still an important, but not sole driver of growth in the segment.