Shippers with decent volumes in the less-than-truckload (LTL) realm are in the driver's seat. LTL volumes dropped significantly in 2001 and are still falling in early 2002, while, at the same time, carrier costs are increasing. The combination means bigger discounts and improved services for LTL shippers, as carriers fight for customers and market share in an increasingly competitive market.

"It's no secret that tonnage in our industry is down by double-digit percentages from a year ago," says Bob Davidson, vice president of marketing and pricing at ABF Freight System of Fort Smith, Ark. "I've been with this company 30 years and we've never seen a downturn that approaches this."

Davidson's comments are echoed across the industry. Volumes were down in the first three quarters of 2001, but Sept. 11 basically squashed volumes in LTL for the rest of the year. Mike Brown, a spokesperson for Consolidated Freightways in Menlo Park, Calif., says the usually hectic shipping season from September to December was virtually nonexistent in 2001. "Business was way down in 2001, even starting in the end of 2000," says Brown. "The pace picked up a little through the year until Sept. 11. For all intents and purposes we didn't have a freight 'season' this year."

Billy Hupp, a vice president at LTL carrier Estes Express Lines in Richmond, Va., says the drop in LTL volumes could have been worse. Hupp says the overall shipping decline turned some truckload shipments into LTL business and some shippers moved air freight to ground services including LTL to cut costs.

Rates in the LTL industry have been flat or declining slightly for most of the past year due to lower volumes and increased competition for market share in the industry. Dan Moore, a transportation industry analyst with Stephens Inc., says volumes are down more in LTL than other ground services because it tends to be the most cost prohibitive among general freight services due to extra handling of freight and the industry's predominately union workforce. That, in turn, forces LTL carriers to lower rates.

"LTL rates are deteriorating due to weakness in the macro economy," says Moore. "The LTL carrier tends to be a high fixed cost business, not unlike air carriers. As a result, slight changes in yields or volumes can create large earnings swings and that's what we're seeing now."

Rick O'Dell, president and CEO of Saia Motor Freight Line in Duluth, Ga., says the first nine months of 2001 saw rates holding firm, but after Sept. 11, downward pricing pressures came on strong and are still present in early 2002. "It will stay like this as long as demand stays soft. Carriers are out there fighting for volumes to support their networks and their employee bases. On the other side, customers are under a lot of cost pressures now and are more likely to make decisions based on price."

Perhaps the most direct cost increase has been the skyrocketing insurance rates in the post-Sept. 11 market. Carriers report insurance rates have risen anywhere from 40-80%, but the competitive nature of the market is making it difficult to pass such costs on to shippers. O'Dell says Saia is trying to reduce its rate of incidents and claims by 15% to offset some of the increasing insurance costs.

A.J. Lombard, manager of corporate contracts and transportation at ITT Industries' TDS Corporate Services, says he's seen the rates for minimum shipments increasing in recent months. That has led ITT to look more into freight forwarders and integrators.

"You have to look at a 200-lb shipment and ask if you want to give it to an LTL carrier that will take four to five days to move it for $100 when you can get it there in two days for $80 with a forwarder," Lombard says. "So we are looking to switch some of our business away from LTL because of increased minimums."

Profit margins in LTL allow rates to come down only so far, especially among smaller carriers. In today's extremely competitive market, carriers are offering more than lower rates to attract new business, and shippers can get more for less.

"I think LTL carriers are competing harder for our business and they are more flexible with their services," says John Kemper, president of Houston-based home furnishings shipper Ashton Inc. Ashton recently consolidated to three core LTL carriers and is reaping the benefits. "They have worked with us on discounts to keep things low. The advantage of cutting down to three instead of spreading our business around fairly thinly is that we are now a more substantial customer and have more pull with the carriers we are using."

Heading into 2002, carriers report less emphasis on expedited shipping and more emphasis on cost-cutting measures. "For us, our expedited service is still active, but there is more thought now as to whether it really has to be there overnight," says Davidson. "And the LTL industry has learned to operate with a wider cycle of business. If you told us two years ago our tonnage was going to be off 10%, I would have been very worried. But other businesses deal with these kind of cycle changes and we're learning to do that as well."

Lombard says ITT is moving away from more expensive premier LTL services to other less expensive options. "For much of what used to go LTL we decided we could obtain some savings from going to truckload shipments with stop-offs," he says. "We also moved more to regional LTLs that can reach destinations overnight in the normal course of business, which provides savings."

Estes is trying to bring in new business by enhancing its guaranteed Gold Medal service. "We have done a lot of things to make ourselves more efficient and to offer some new services to customers," says Hupp. "We also opened a Caribbean division last year. We've tried to position ourselves to be a better option in the industry."

Internet-based technologies are one offering that LTL carriers are using to attract business. Most carriers provide online tracking and tracing as a value-added service and private trading networks are emerging as a better method of improving the exchange of information between shippers and carriers.

Old Dominion Freight Line of Thomasville, N.C., is offering a transportation management system to its customers. "We know most shippers aren't going to give us all of their freight, but we hope they will give us a little more freight if we provide a nice tool," says David Congdon, president of Old Dominion.