During the pandemic and in its aftermath, shippers were over a barrel when it came to getting their products to customers. With transportation demand greatly exceeding capacity, carriers held all the cards in negotiating rates.
Fortunately for shippers, times have changed. Ten interest rate hikes since March of last year and continued inflation have taken a significant bite out of consumer demand; in turn, demand for transportation of goods has decreased. According to one measure of shipper requests for truckload capacity, demand was only 9% higher this past fall than it was during the week before Thanksgiving of 2019, after averaging nearly 50% above pre-pandemic norms from July 2020 to March 2022.
While shippers are still reeling from general rate increases, accessorial costs and high fuel surcharges, falling shipment volumes offer them the chance to retake some control of freight costs. Eagerness on both sides – by shippers wanting to cut costs and carriers wanting to fill trailers – has triggered a surge in vitality for a specific transactional arrangement – volume less-than-truckload shipping (volume LTL, or VLTL).
What is volume LTL and how does it benefit shippers?
Volume LTL shipments are unique, one-off savings opportunities resulting from efforts by carriers to fill capacity on backhaul lanes. Carriers are eager to cut deals under these circumstances because they want to fill trailers and balance their networks. Carriers’ desire to capture what incremental revenue they can from these return trips allows shippers to buy at a rate lower than they would normally pay for truckload or traditional LTL. In addition to the silver lining of making a buck on a trip that’s otherwise a loss, volume LTL also helps carriers sidestep the problem of empty trailers that are more difficult for their drivers to control on the road.
In dimensional terms, volume LTL tends to roughly consist of a minimum of 5-6 pallets, occupying over 750 cubic feet, sitting in the sweet spot between traditional LTL (1-2 pallets, less than 20,000 pounds) and truckload (40,000 pounds and up). From the shipper’s perspective VLTL not only offers a low base linehaul rate, it might also allow them to forego costly accessorial surcharges and extra fees associated with traditional LTL. Avoiding surcharges is especially beneficial for certain types of loads. Overlength shipments like steel bars often incur aggressive fees when transported via traditional LTL. And I do mean aggressive – some carriers might apply a $500-1,000 surcharge to freight that’s 10 feet or longer, like pieces of a swing set or home gym. Likewise, loads that are very lightweight but take up significant volume, like pillows, are often penalized in traditional LTL calculations. Similar to dimensional pricing in parcel shipping, LTL carriers have a cubic capacity minimum charge rule, which applies an alternate rate to any shipment 750 cubic feet or larger that is less than six pounds per cubic foot.
Beyond the load size parameters, shippers must weigh other sacrifices, though they could be minor and acceptable depending on the nature of the shipment. First, there’s speed. Because delivery is based on the carrier’s backhaul availability, a shipment may sit at a terminal for a day or two awaiting a trailer with available space. In reality, not all shipments must be delivered with the same level of speed or punctuality, and therefore volume LTL remains broadly applicable for shippers even if it’s incompatible with shipments that have a strict must-arrive-by date. The opportunity to trade significant savings for a slightly slower delivery warrants a critical examination to understand whether certain shipments might make strong candidates for VLTL. Another potential drawback to keep in mind is that carriers tend to offer lower liability coverage for cargo in these types of transactions, though shippers do have the option of purchasing add-on coverage.
How do I navigate the VLTL market?
VLTL transactions take place on the spot market, and compared to truckload or LTL, negotiations are far more fluid, making it essential to find a favorable rate and book it quickly. Quotes happen in real time and on a one-off basis. In other words, a quote is based on a specific amount of space a carrier has on a particular truck that’s returning from dropping off a load, and the rate can expire or be claimed if shippers drag their heels. Because of the quick-trigger nature of these transactions, VLTL has especially come into fashion in the last decade or so, solidified by the proliferation of large third-party logistics (3PLs) firms and the resulting growth in transportation management systems (TMS) technology. 3PLs play a significant role in VLTL arrangements because of their ability to quickly aggregate the information needed in order to capitalize on VLTL opportunities, saving time and money for the shipper and delivering a win-win as the carrier tries to fill unoccupied capacity.
That said, the best way for a shipper to take full advantage of the VLTL market is to work with a logistics expert on implementing a TMS that provides real-time quotes and relevant context. Accessibility of information is what makes VLTL tick, and that information includes not only a listing of available lanes but also an explanation of the service offering and a determination of what kinds of loads make the most sense. Shippers need these rates aggregated and displayed in a platform – preferably alongside truckload and traditional LTL rates for purposes of comparison – that allows them to make informed, fast decisions.