Driven by burgeoning freight tonnage and shipment volume, less-than-truckload (LTL) carriers are knocking down terminals walls, adding dock space and doors, and building new facilities at the fastest pace in more than a decade. The mini-construction boom follows steadier, sustainable growth in the kind of industrial freight shipping that moves across LTL docks and fills trailers.
The LTL expansion has been brewing for more than a year, as trucking companies prepared for a surge in freight that always seemed somewhere past the next mile marker. Smaller, regional companies have led the way by adding terminals and acquiring competitors, but as the US economy, especially the industrial sector, expands at a faster pace, larger carriers are joining.
The cumulative result of 11 consecutive months of manufacturing growth, as measured by the Institute of Supply Management, and some degree of inventory drawdown is a sustained surge in the number of shipments piling up on LTL docks. That trend was noted by trucking executives and logistics operators in the second quarter and even July, which is typically a softer month for trucking.
Trucking companies are eager to compete for new business, but the current round of terminal expansion is more than a bid for market share (as freight markets heat up, LTL rates are moving higher, with most carriers seeking price hikes). Instead, LTL carriers are trying to build faster, more efficient networks to meet shipper demands for greater supply-chain speed.
Shippers are “concerned with velocity in their supply chains,” Don Orr, president of Waco, Texas-based Central Freight Lines, said earlier this year after acquiring Wilson Trucking, a regional LTL carrier in the Southeast. “That’s something you really need to understand. The supply chains of most customers are changing, and in almost all cases, accelerating.”
Perhaps the most startling and most recent expansion plans are those of YRC Freight, which informed the Teamsters union last week it will open eight new distribution centers (DCs) to complement the 23 distribution hubs it operates today. The eight new facilities will help YRC Freight handle an additional 7,000 shipments a day, the company said in a July 25 letter.
“The constraints that exist within the current structure cause the company to regularly incur severe freight back-ups at seven of the present distribution centers,” YRC Freight wrote to Teamsters union General President James P. Hoffa and National Freight Director Ernie Soehl. “These back-ups occur most frequently during end of month and end of quarter freight surges.”
The addition of new DCs will “allow for more consistent and reliable freight flow, improved service, and the creation of the additional capacity needed to grow business,” YRC Freight said. The eight terminals will be in Hagerstown, Maryland; Richmond, Virginia; Orlando, Florida; San Antonio, Texas; St. Louis, Missouri; Columbus, Ohio; Omaha, Nebraska; South Bend, Indiana.
The addition of eight DCs is the first major expansion at YRC Freight in a decade. From 2008 through 2013, the trucking company slashed its network from 521 to 267 terminals, as YRC integrated the networks of former subsidiaries Yellow and Roadway and struggled to keep business. Today the nationwide LTL carrier has 260 terminals with 14,279 dock doors.
That network is getting tighter, the company told Teamsters leaders. “The increase to 31 distribution centers will significantly relieve pressure points within the existing network,” YRC Freight said. That pressure is mounting as shipment volumes rise. YRC Freight is expected to report strong freight volumes when it releases second-quarter earnings Thursday.
In April and May, the LTL carrier’s tonnage rose 6.2 percent and 3.3 percent year over year, respectively. Other LTL carriers, including Old Dominion Freight Line, UPS Freight, and Saia reported high single-digit increases in tonnage for the second quarter. ABF Freight System reported strong e-commerce-related demand, with shipments per day rising 4.4 percent from a year ago.
Freight volumes in the third quarter to date remain elevated, trucking companies such as ODFL and Saia reported last week. That has more companies than YRC Freight ramping up expansion plans. Estes Express Lines, the largest privately owned LTL carrier in the United States, broke ground this summer on a fifth terminal in the Chicago area, a 260-door facility in Joliet, Illinois.
The Chicago terminal — which will be Estes’ biggest — is the first new facility for the Richmond, Virginia-based carrier in several years, said Angela Maidment, vice president of corporate real estate. “It will enhance the existing network” through which Estes serves shippers in the Chicago area, which includes terminals in McCook, Elgin, Markham and Lincolnshire.
Estes also plans to open a facility in Kokomo, Indiana, in the next few months, its fourth terminal in the Hoosier state. “Occasionally you do what I call ‘infill’ to support larger markets,” Maidment said. “Kokomo will support Indianapolis.” Estes currently has 216 facilities across the United States.
As the largest LTL operators consolidated networks in the wake of the recession, companies such as ODFL seized the opportunity to expand. In 2001 ODFL had 115 service centers. The carrier now has 226, and it recently opened new facilities in Allentown, Pennsylvania, and Tyler, Texas, while upgrading facilities in Arizona, Illinois, Louisiana, New York, and North Dakota.
“We did just recently open our fourth terminal in the Chicagoland area, and it seems that as we continue to add capacity really around the country, there is demand there for our service product and we’re able to increase growth,” Adam Satterfield, ODFL senior vice president and CFO, told Wall Street analysts during an earnings call transcribed by Seeking Alpha last week.
ODFL is now the third-largest stand-alone US LTL company, ranked by revenue, according to SJ Consulting Group data, following FedEx Freight and XPO Logistics. YRC Freight, UPS Freight, and Estes are the fourth-, fifth-, and sixth-largest LTL operators, respectively.
Saia, which opened four Northeastern terminals in May, is preparing to open a new terminal in Maryland in the fourth quarter and looking for locations for four or five additional facilities. Adding terminals in the Northeast means bulking up facilities in adjoining regions to connect freight markets and customers, president and CEO of the multi-regional carrier, said.
“If you’re adding five new terminals” in locations from Newark to Pittsburgh, “you also probably need Indianapolis and St. Louis and Cincinnati to be bigger before you’re ready to begin operations,” O’Dell said. Those midwestern facilities will handle much of the additional freight expected to flow to and from Saia’s shipper customers in the Mid-Atlantic and Northeast.
However, LTL networks are not built in a day. Opening even a small new terminal can take years of planning before the first shovel breaks ground. Finding real estate is the biggest obstacle, and existing facilities where trucks can be ready to roll are increasingly difficult. “Most of the real estate executives in our industry are always watching what’s available,” Estes’ Maidment said.
Sites suitable for 200-door terminals are not plentiful. One advantage for carriers searching for space is that unlike warehousing, where higher ceilings and new distribution areas are in demand, basic LTL building requirements have not changed much, Maidment said. “The designs change a little bit in terms of the size needed, but I’m seeing a lot of the old tried and true.”
The number of dock doors, she noted, is still the basic measure of capacity in LTL networks, not the number of square feet or a company’s tractor count. “Make sure you have plenty of parking and the pavement to handle it,” she said. If current freight trends remain steady, Estes and its competitors will need that pavement and plenty of dock doors this fall.