The nation’s largest less-than-truckload carriers had one consolation in the second quarter — they weren’t truckload carriers. Most LTL carriers saw revenue slip year-over-year as the U.S. freight economy weakened, but not to the same extent as their truckload counterparts.
To date, the only large LTL carrier that hasn’t reported a revenue decline in the quarter is the largest, FedEx Freight, which increased revenue 2 percent in the quarter that ended May 31. (XPO Logistics, the second-largest U.S. LTL carrier, will report earnings on Aug. 4).
Across the publicly owned LTL sector, second-quarter revenue slipped anywhere from 0.9 percent at Old Dominion Freight Line to 11.9 percent at Roadrunner Transportation Systems.
Most LTL carriers saw profits decline as well, with ABF Freight System’s operating profit dropping 38 percent year-over-year, Saia’s net profit falling 31 percent, and Roadrunner’s LTL operating profit plunging 91 percent from the second quarter of 2016, earnings reports show.
YRC Freight was the exception, increasing operating profit 26.2 percent from a year ago to $28.4 million. “YRC Freight most interestingly improved productivity on the dock, on the street, and in linehaul in spite of a decline in network volumes,” Stifel managing director David G. Ross said in an investor note. YRC Worldwide’s net profit rose 4.2 percent to $27.1 million.
Overall, LTL volumes dropped rapidly, as did fuel surcharges, both cutting into top-line revenue. And for many of FedEx’s LTL competitors, June was a stronger month than April or May. Most LTL carriers said freight demand was even better in July, though still lower than a year ago.
Outside FedEx Freight, which increases shipments 8 percent in the three months that ended May 31, the other major LTL players all saw shipments decrease from 0.3 percent at ODFL to 6.9 percent at UPS Freight. Tonnage dropped less than 5 percent at five of the LTL carriers that have reported earnings to date, and between 6 and 13 percent at the other three carriers.
However, LTL pricing, rather than falling as fast as truckload rates, is holding fast, and even rising at some carriers. The vaunted pricing “discipline” gained by LTL carriers since the last
recession and LTL price war appears to be holding despite the “lackluster” economy.
“On our contract and deferred pricing renewals, during the quarter, we averaged an increase of 2.9 percent,” ArcBest Chairman, President and CEO Judy R. McReynolds told analysts. At Saia, contractual price increases averaging 5.4 percent, President and CEO Rick O’Dell said.
“The pricing environment remains much more rational in the LTL space” than in the truckload space, YRC Worldwide CEO James Welch said in his company’s earnings call, transcribed by Seeking Alpha. “We believe that our strategy of improving price and freight mix has positioned us well for the future.”
It also helps that LTL carriers, unlike truckload operators, aren’t burdened by excess capacity. While truckload carriers measure capacity in terms of trucks and drivers, LTL trucking companies tend to measure capacity by terminal doors and network utilization.
YRC Worldwide did sell some “excess” terminals in the quarter, and ABF Freight System reported some real estate sales, the largest LTL operators have spent six years rethinking and redesigning networks. Smaller operators, and some large ones, are still expanding.
Thomasville, North Carolina-based ODFL expanded, relocated or opened terminals in Colorado, Indiana, New York, North Carolina and Texas in the second quarter. The $3 billion trucking operator has opened more than a dozen terminals coast-to-coast over the past five years.
A number of smaller regional privately owned carriers, including Dayton Freight Lines and New England Motor Freight, also added terminals in the second quarter. Their goal was to expand geographic footprints and gain density by providing complete services in their regions.
The largest LTL carriers are still paring away unprofitable freight, which also reduces revenue, tweaking their network utilization and investing in technology to improve linehaul and dock productivity, all in hopes freight demand will pick up in the second half of 2016.
“From our point of view, LTL companies are focused on evolution of the supply chain distribution process and getting an adequate return on the capital,” YRCW’s Welch said. That’s likely to remain their focus through the end of a difficult year.
Source: http://www.joc.com/
Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc
