Less-than-truckload carriers are doing something they haven’t done in a long time — hiring.
Some trucking companies still recovering from the recession, even those that laid off hundreds or thousands of workers, suddenly find themselves short of LTL truck drivers and truck capacity.
YRC Worldwide subsidiary Holland signaled a potential turning point in the LTL market last week when the regional operator said it would hire 1,000 drivers this year.
YRC’s regional carrier group, which includes Holland, returned to profitability in the second quarter of 2010. At the close of the first quarter, Holland’s LTL terminals in the Midwest are buzzing with a level of activity the company hasn’t seen in years.
Holland has brought back workers laid off during the recession and is looking for new hires to expand driver head count by almost 15 percent.
Industrial shipping is driving the carrier’s recovery. Manufacturing output increased almost 7 percent in 2010, spurred by production of motor vehicles and parts, according to the Federal Reserve Bank, and is expected to accelerate in 2011.
“We’re seeing a lot of strength in the underlying domestic automotive and manufacturing base,” said Jeff Rogers, president of Holland. “A lot of the areas that were hit hardest three years ago are having the strongest comeback. ”
Those areas include the states of Ohio and Indiana and the greater Chicago area. “We’re seeing a manufacturing resurgence, rather than a retail one,” Rogers said, though he noted Holland relies more on manufacturing than other YRC subsidiaries.
Holland may be ahead of the hiring curve — many competitors say they are bringing workers onboard more slowly. But Holland isn’t the only LTL carrier that sees a stronger recovery building on a foundation of industrial freight.
“Business is rebounding, and profits are moving up,” said Rick O’Dell, president and CEO of Saia Motor Freight. “Returns are improving, and yields are on the rise.”
Saia also is handling heavier shipments and more industrial palletized cargo, O’Dell said. “As retail becomes a smaller portion of LTL, a higher percentage of LTL shipments are for manufacturers and industrial clients,” he said.
At Old Dominion Freight Line, the most profitable public LTL carrier, 2010 freight gains carried into 2011. “In our first quarter, we’re anticipating tonnage growth in the 18 to 20 percent range,” President and CEO David S. Congdon said.
“Industrial production and manufacturing is stable and still relatively strong,” he said. “About half of our business comes from industrial goods.”
The 2011 industrial rebound contrasts with last spring’s retail-driven surge in inventory restocking, which finally pulled LTL trucking out of the recession. LTL trucking revenue grew 9.1 percent in 2010, its first increase since 2006.
However, total U.S. LTL revenue plummeted 24.4 percent in 2009, possibly the worst annual contraction since palletized freight left railcars for truck trailers. LTL carriers recovered only 37 percent of the 2009 sales loss last year, according to estimates provided by SJ Consulting Group in Pittsburgh.
Leaner carriers expect to recoup more of that lost revenue in 2011, as tighter capacity across transportation modes affects their networks and pushes pricing higher. As truckload capacity becomes more expensive and harder to find and intermodal rates rise, LTL truckers are thinking about capacity in new ways.
“Historically, we defined LTL capacity as door capacity — how much business you could handle through your terminal doors,” said O’Dell, whose Johns Creek, Ga.-based regional LTL company operates 147 terminals in 34 states.
But LTL carriers shuttered or sold terminals as they re-engineered networks in the recession. The focus on hiring drivers and replacing aging tractors in 2011 indicates the rationalization of the LTL industry’s physical footprint has slowed, if not stopped, and that carriers are managing capacity along the margins of their networks.
“In the near term, LTL capacity will probably be defined more by the availability of tractors and drivers, as opposed to network capacity,” O’Dell said.
“There’s still excess LTL capacity out there,” Rogers said. “I may have extra doors, but I have no drivers. Drivers are the limiting factor right now.”
Like truckload operators, LTL carriers won’t push those limits too far. “At certain yields, you’re going to rationalize your business mix before you add drivers and equipment,” O’Dell said. “If you can grow yield 12 percent or 5 percent, depending on the freight you choose to haul, which do you pick?”
ODFL’s attention to yield management helped the company stay in the black throughout the recession. There’s still potential, Congdon said, for a period of sustained financial health and profitability. “I think we’re seeing the start of that,” he said.
“Anytime you go through a downturn like this you tend to be more conservative,” O’Dell said. Saia returned to profitability last year and increased revenue 6.3 percent to $903 million. But Saia’s total revenue tumbled 17.6 percent in 2009, and the company lost $28.6 million combined in 2009 and 2008.
The rate hikes LTL carriers have won since the recession — and increases in both non-contract and contract rates are sticking — may just be a starting point.
“There are a couple of camps on rates,” O’Dell said. “One says there’s still excess capacity, we don’t see why we should have to pay more. But there’s another camp that says the current situation is not sustainable. And I’m kind of in that camp.”
LTL carriers will need to raise rates in 2011 to replace aging equipment and hire drivers, whose wages are expected to rise, he said. “There will be a big push on the pricing side from the industry. Shippers may be reluctant to give up some of the gains they made in a soft market, but I don’t think they have much choice.”
Contact William B. Cassidy at email@example.com.