The Rise of Less-Than-Truckload Shipping: How E-Commerce Is Reshaping the Middle of the Supply Chain

In the supply chain, after the first mile and before the last mile, lies the logical "middle mile." However, in logistics practice, this intermediate link has historically not been the focus of all shippers.

Over the past five years, e-commerce has changed this situation.

"It has truly transformed the middle mile from a commoditized accessory into a competitive advantage in today's environment," said Mac Pinkerton, president of North American surface transportation at C.H. Robinson, to Supply Chain Dive, a sister publication of Transport Dive.

The story of how e-commerce has changed logistics is not unfamiliar to supply chain professionals. Consumers expect fast and free delivery, a notion that many logistics professionals view as unrealistic.

"Freight is not free," said Meg Schmidt-Duncan, director of strategic sourcing at Koch Logistics, adding that costs "will always show up somewhere."

Companies are shipping in smaller quantities and more frequently, which presents logistics managers with more management tasks in increasingly complex networks, and at a significant cost to all parties.

"You're no longer shipping full truckloads," said JP Wiggins, co-founder and vice president of logistics at 3Gtms. "You're in a different type of supply chain environment"—one centered on e-commerce and less-than-truckload (LTL) shipping.

The rise of e-commerce and LTL

If long-haul truckload was the king of the middle mile, LTL has quickly ascended to the throne.

"In terms of industry trends, over the past four or five years, LTL growth has largely outpaced truckload growth in North America," Pinkerton said.

LTL may be the biggest beneficiary of e-commerce growth. In Q2 2016, e-commerce accounted for 7.5% of total U.S. retail sales (not seasonally adjusted), with sales exceeding $91 billion, according to U.S. Census Bureau data. By Q2 2021, that share had risen to 12.5%, with sales slightly above $211.7 billion.

Although consumer purchasing was already moving toward digital before the pandemic, social distancing measures acted as a catalyst for e-commerce. Brick-and-mortar stores began building e-commerce capabilities, and consumer goods companies seriously entered this space over the past three years or so, trying to figure out how to operate beyond traditional retail channels, Pinkerton said.

"The pandemic accelerated omnichannel and e-commerce by five years. That must be clear," Wiggins said. "Now, whether you're a B2B or B2C shipper, you're moving inventory from anywhere to where it's needed. This is a major shift."

Goods that might have previously required a single truckload shipment are now being split into multiple shipments, said Jonathan Kletzel, transportation and logistics partner at PwC, in an email.

"A significant amount of freight is shifting from truckload models to larger regional distribution models, and then to LTL long-haul transportation," Schmidt-Duncan said.

This trend is also reflected in employment data. U.S. Bureau of Labor Statistics data show that employment growth in the truckload sector has been relatively stagnant, while LTL employment has grown significantly (excluding the pandemic-induced decline in 2020).

Trust in LTL carriers

As e-commerce demand surged, inventory visibility began to extend to in-transit goods. Pinkerton noted that some goods in the middle mile may be sold online before they even arrive at a retailer's warehouse. Consumers expecting such early involvement in the inventory logistics journey has increased risk for retailers.

"This is a huge change over the past few years," Pinkerton said.

Electronic logging devices (ELDs) came into use in the second half of 2017. While their primary function is tracking driver hours, technology manufacturers typically attach GPS capabilities, Pinkerton said. Suddenly, stakeholders gained greater visibility.

"This quickly expanded as part of on-time, complete delivery and inventory flow plans," he said. "The technology in this space—providing visibility into where a truck is at any point in time—improved significantly during that period."

However, Pinkerton also mentioned that the trucking community resisted this, insisting on tracking cargo rather than drivers. This gave rise to sensor technology.

"LTL carriers... are no longer a black box when it comes to when freight will arrive. Due to investments in digital innovation, shippers can trust them more," Kletzel said.

More shipments mean more work for supply chain managers, but it also makes shippers more strategic and ultimately less risky, Kletzel believes.

LTL: tight and expensive, but also an equalizer

For many shippers, the LTL market is currently chaotic. Schmidt-Duncan said she receives emails from carriers daily saying they are fully booked for the day or only accepting limited freight in specific markets. These notices may arrive before noon.

Shippers must then decide whether to hold the freight and forgo on-time delivery, or turn to another carrier. If they turn to the spot market, costs could be about 30% higher, Schmidt-Duncan said.

"The whole situation keeps deteriorating and has become crazy," she said.

Retail executives, in particular, have expressed dissatisfaction with high freight costs, as seen frequently in recent earnings calls. Although headwinds are not expected to last forever, the costs still need to be explained.

"Logistics teams have been securing freight capacity, and we need to get goods to distribution centers and stores to meet strong demand. We pay more when necessary," TJX CEO Ernie Herrman said on an investor call.

David Heller, vice president of sales at Redwood Logistics, said shippers are seeking help to reduce LTL costs.

"Capacity tightness is at record levels, and whenever that happens, rates also reach record levels," he said.

But LTL can also be a democratizing tool. Through e-commerce, consumers can buy directly from a variety of businesses, bypassing the brick-and-mortar middleman. Instead, the key lies in the middle mile, and transportation managers who can strategically leverage it can bring advantages to their companies.

"I think LTL is a key enabler of local fulfillment, allowing businesses to compete with national brands," Kletzel said. "To succeed, they need to serve local fulfillment through more direct, smaller shipments to better manage local inventory—especially for slower-moving SKUs."

When shippers look for LTL partners, carriers are, of course, also looking for shippers. Pinkerton said the successful companies will be those that can offer customers an end-to-end logistics experience, including last-mile and full visibility.

As for the future of the middle mile, other freight modes may become more prominent, Kletzel believes. He believes rail transportation will increase in importance, whether through LTL networks or domestic intermodal. Supply chain leaders are also discussing the use of vertical takeoff and landing aircraft in congested metropolitan areas, Kletzel said.

But predicting the future is difficult, especially given how quickly e-commerce has changed the middle mile.

"People are shipping in different ways now," Wiggins said. "How will this evolve? I don't know. But it has changed substantially."