Less-than-truckload (LTL) carriers continue to report a slump in demand for their services and are getting increasingly competitive on cost, say market watchers.

The housing and general economic slowdown in the U.S. is making LTL carriers increasingly concerned about their volumes, while higher gas prices hit their margins.

In a recent interview with Dow Jones Newswires, Bill Zollars, CEO of LTL trucking firm YRC—which owns brands Yellow Transportation and Roadway—said he hasn't seen signs yet that suggest when the market might improve.

"It's gotten a little bit worse every month, and unfortunately that continues," he said. "We haven't seen the bottom of this thing yet."

In a separate interview, Zollars said that pricing at the regional operations of the LTL carrier has caused some "self-inflicted wounds" and YRC is rectifying this by "firing some customers."

Bear Stearns analysts said FedEx Freight's move in 2007 to reduce its fuel surcharge continues to put pressure on other LTL carriers. The analyst firm says LTL carriers remain concerned about weak tonnage and "deteriorating pricing" through early 2008.

FedEx said it expects a lower peak shipping season, but that fuel costs were its biggest concern going forward. "Since September, our fuel costs have increased more than 8%, or $85 million," said Alan Graf, FedEx Corp.'s CFO. "While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices."

Graf said the FedEx Freight LTL business unit was continuing to see weak demand and that the company was "taking prudent steps to reduce expenses, and are reviewing our capital investment plans for further reductions."

JPMorgan analyst Thomas Wadewitz said he expects LTL carriers to continue to increase capacity going into 2008 and sees carriers getting more competitive on pricing.

Dan Skubiz, an equity research analyst at St. Louis-based Missouri Valley Partners, pointed out in a recent Reuters report that "FedEx and UPS don't just try a new market on for size, they get into it to win." In the same Reuters story, John Labrie, president of Con-way Freight, said FedEx and UPS "have raised the bar in the LTL market."