The less-than-truckload industry accelerated in 2011, shedding any remnants of lethargy as shipping demand increased and excess LTL capacity dwindled.
The largest LTL carriers increased their combined revenue 12 percent last year to $27.6 billion, according to The Journal of Commerce list of Top 25 LTL Carriers, prepared by SJ Consulting Group in Pittsburgh (See rankings, page 34). That 12 percent leap was the biggest annual expansion for the group since 2005, when a 9.9 percent gain in revenue took LTL trucking companies to the peak of the last economic cycle.
Last year’s gain followed a revised 9.2 percent increase in revenue for the Top 25 in 2010 after an unprecedented market collapse in 2009, when the same group lost nearly 25 percent of its 2008 revenue in one disastrous year.
The LTL trucking industry as a whole achieved more than $30 billion in revenue last year for the first time since the recession, increasing LTL sales 11.6 percent to $30.6 billion, compared with a 9.1 percent increase in revenue to $27.5 billion in 2010. (In its study, SJ Consulting ranks carriers by LTL revenue alone, excluding revenue from non-LTL sources such as truckload carriage and third-party logistics.)
Still, the recovery is incomplete. Despite steady improvement, LTL trucking has yet to regain its 2006 revenue peak of $33.7 billion, let alone the $33.3 billion in revenue reported for the industry before the economic collapse in 2008.
“Even with this improvement, their revenue is still lagging compared to their best years,” said Satish Jindel, president of SJ Consulting. “The truckload and parcel carriers have almost regained that level and have better margins than LTL.”
It will take a stronger economic recovery to boost LTL revenue back to those peak levels, but with freight demand holding steady, carriers are beginning to catch up. Excess capacity, traditionally measured in terminal doors, slowed their progress, but after years of trimming networks, LTL capacity in 2012 is more likely to hinge on drivers, dockworkers and equipment than on property.
That should give LTL carriers that have their finances and networks in order a chance to build steadily on the advances they made in 2010 and 2011.
The 25 largest LTL truckers last year certainly built on progress made in 2010, with all the carriers on the JOC-SJ Consulting list raising revenue between 5.6 percent and nearly 26 percent. Revenue climbed by double digits at 18 companies, and 15 carriers accelerated their rate of expansion year-over-year. Compare that to 2009, when the revenue of every carrier on the list shrank at least 10 percent.
YRC Freight, the newly renamed long-haul subsidiary of YRC Worldwide, reversed years of decline in 2011 and boosted LTL revenue 11.6 percent to $3.2 billion, according to the SJ Consulting study. (The long-haul carrier’s operating revenue for 2011, according to its latest fiscal report, was $3.2 billion.)
Related: Rebounding Margins.
Although YRC Freight ranked third among stand-alone LTL carriers, YRC Worldwide, helped by subsidiary YRC Regional, regained its status as North America’s largest LTL operator, just $27 million ahead of FedEx Freight, which at $4.7 billion retained the title of largest LTL carrier. Con-way Freight, the LTL subsidiary of $5.7 billion trucking and logistics giant Con-way, placed second on the Top 25 LTL Carriers list with $3.2 billion in revenue.
For the full year, YRC Worldwide increased revenue 12.3 percent to $4.9 billion, according to its latest earnings report, its first annual increase in revenue since 2006, when YRC Worldwide was a $9.9 billion trucking holding company.
FedEx Freight has posted three straight profitable quarters, reporting a $40 million operating profit in the quarter that ended Nov. 30. Con-way Freight increased operating profit to $119.8 million from $28.9 million in 2010.
Con-way Freight and FedEx Freight stabilized operations after a 2009 price war aimed at gaining market share and damaging rival YRC Freight plunged them into losses. That stabilization is reflected in the reduction in their revenue growth year-over-year from 2010 to 2011 as they culled unprofitable freight. In 2010, the FedEx unit expanded its top line 22.2 percent, and Con-way grew at a 17.5 percent clip. FedEx Freight increased revenue 6.5 percent and Con-way, 5.6 percent.
From the LTL giants, the Top 25 list descends rapidly to regional carriers.
The smallest of the Top 25, Wilson Trucking, returned to the list in 2011 with $137 million in revenue, bumping Ward Trucking, which took its place last year.
The Top 25 claimed a bigger share of the market in 2011, as their portion of total LTL revenue rose to 90 percent from 87.6 percent in 2010. Smaller carriers grew, too, but more slowly, increasing revenue 8.1 percent last year to $3.1 billion, compared with a 7.8 percent expansion in 2010. Those hundreds of smaller LTL companies combined had slightly less revenue than YRC Freight last year, another sign of the shift in LTL revenue toward the top of the market.
The number of LTL trucking companies with more than $1 billion in revenue increased from seven in 2009 and nine in 2010 to 10 last year, as Saia pushed its sales up 14.1 percent to just more than $1 billion. Saia’s net profit also shot up to $11.4 million in 2011 from slightly less than $2 million in 2010. The annual gains were reflected in fourth quarter results, when Saia’s profit more than tripled to $6.2 million.
As a subgroup, the “Billion Dollar 10” expanded its revenue year-over-year 17 percent to $22.2 billion. Excluding Saia, the nine carriers with more than $1 billion in revenue in 2010 still increased LTL sales 11.6 percent to $21.2 billion.
The Billion Dollar 10 — of which only two, Estes Express Lines and R+L Carriers, are privately owned — account for 81 percent of the Top 25’s revenue and 72.5 percent of total LTL revenue. That’s up from 67.5 percent of the total market last year.
In addition to Saia, Estes and R+L, the billion-dollar club included FedEx Freight, Con-way Freight, YRC Freight, UPS Freight, Old Dominion Freight Line, ABF Freight System and the YRC regional carrier group of Holland, New Penn and Reddaway.
ODFL had the strongest growth of any company on the list last year, expanding its top line 25.7 percent, compared with 19 percent in 2010. That pushed the Thomasville, N.C.-based carrier up one rung on the list to No. 5.
The only other Top 25 carrier to increase revenue more than 20 percent was Dayton Freight Lines, which, at 24.9 percent, had the largest year-over-year revenue increase among the privately owned LTL carriers on the list. The Dayton, Ohio-based Midwestern carrier boosted revenue to $321 million, according to SJ Consulting. “They are more profitable than all public LTL carriers except ODFL,” Jindel said. “Here’s a private company that can grow at a 24 percent-plus rate and get very profitable margins. What’s the excuse for the big guys?”
The number of carriers in the $500 million-to-$999 million revenue class fell from six in 2008 to four in 2009 to three in 2010 and 2011. Last year, they were Southeastern Freight Lines, which increased revenue 13.5 percent to $820 million; Vitran Express, which acquired Milan Express, boosting LTL revenue 18 percent to $686 million but incurring an annual net loss of $14 million; and Averitt Express, which increased sales 12.5 percent to $557 million, according to SJ Consulting estimates.
Eight companies reported revenue ranging from $200 million to $499 million. Roadrunner Transportation Systems, the fastest-growing LTL carrier in 2010, increased LTL revenue 13.9 percent to $467 million, according to SJ Consulting. Roadrunner’s total revenue, including truckload and logistics, leaped 33.5 percent in 2011 to $843.6 million, while its profit soared more than eightfold to $25.9 million.
Other LTL carriers in Roadrunner’s revenue class include AAA Cooper Transportation, Central Transport International, New England Motor Freight, Dayton Freight Lines, Pitt Ohio Express, A. Duie Pyle and Central Freight Lines.
Only four carriers with less than $200 million in revenue made the 2011 list — Daylight Transport, Oak Harbor Freight Lines, New Century Transportation and Wilson Trucking — compared with five in 2010: Daylight Transport, Oak Harbor Freight Lines, New Century Transportation and Wilson Trucking. Central Freight Lines broke the $200 million barrier in 2011 with $207 million in revenue, according to the study.
As revenue became more concentrated at the top of the LTL market, prospects for consolidation receded. The only major LTL acquisition since the recession was Vitran’s purchase of Milan Express of Tennessee, which proved difficult for the Canadian-based company to absorb into its network. As a whole, the LTL industry entered 2012 leaner and in a more stable condition than it’s seen in the past decade, a period of stunning acquisitions and consolidation and equally stunning losses.
Since 2007, only one significant LTL operator has gone out of business, Jevic Transportation in 2008. Long-troubled YRC Worldwide avoided the bullet again in 2011 through its second out-of-court financial restructuring in as many years. That stability, at least at the top of the market, led to what YRC Worldwide CEO James Welch called the most “disciplined” LTL pricing environment he’s seen in decades.
Yield, a measure of pricing, surcharges and operating efficiency, increased at the largest LTL carriers in the fourth quarter, rising 4.8 percent at YRC Freight, 5.7 percent at YRC Regional, 8 percent at FedEx Freight, 8.3 percent at Con-way Freight, 10.7 percent at ODFL, 11 percent at Saia and 12.8 percent at ABF Freight System.
Analyst John G. Larkin expects “low and steady” price increases for LTL and truckload carriers in 2012, excluding fuel surcharges, as shippers begin to worry about the availability of capacity. “The freight outlook for the next couple of months looks reasonably solid,” Larkin, managing director for transportation research at investment research firm Stifel Nicolaus, said during a Journal of Commerce Webcast on March 1.
Higher equipment and labor costs will squeeze LTL capacity, “but I don’t see any macroeconomic factors that would lead to super-tightening,” Gary Girotti, vice president of the transportation practice at Chainalytics, said during the Webcast.
As a whole, LTL trucking needs to become more profitable, whether through higher pricing or better management, so carriers can reinvest in their own businesses and replace aging equipment, Jindel said. “The industry needs to be more aggressive in getting a fair return on their investment,” he said. “They’re too quick to accept 3 to 4 percent. Truckload carriers are making margins of 12, 14 and even 20 percent. Why do LTL carriers feel shippers won’t let them make those margins?”