Less-than-truckload carriers are firing rate increases aloft like flares, hoping to secure higher pricing that will keep them afloat in an uncertain economy.
But it’s not clear if shippers who are uncomfortable with their own progress toward recovery will respond to carrier signals without a contraction in LTL capacity.
YRC led the trucking pack with a general rate increase of 5.9 percent on Sept. 20. It was the national LTL carrier’s second GRI this year and a strong sign truckers are anxious to raise pricing.
|ABF Freight System followed with a 5.9 percent GRI on Sept. 27.
FedEx Freight, YRC’s largest competitor, is “considering” a GRI of its own, and a host of smaller carriers aren’t far behind. “I would think they (YRC) would not be the only player that goes (for a GRI) this fall,” Richard E. Gaetz, president and CEO of Canadian-based LTL carrier Vitran, said last month.
Beyond general rate increases, LTL carriers are asking individual customers to accept higher pricing as they negotiate long-term contracts. The GRIs only apply to non-contract freight, a minor share of most carriers’ business, but truckers can use them to test the waters and as a bargaining chip in shipper negotiations.
LTL carriers are finding it more difficult to increase pricing than truckload carriers, which are raising rates as demand builds and capacity shrinks.
“LTL rates have been flattish over the past year, and capacity has remained readily available,” said Edward M. Wolfe of the Wolfe Trahan investment research firm.
Excess capacity — too many trucks — is part of the problem, but LTL carriers also fought a price war last year, offering discounts that left their tariffs in tatters.
Deep discounting helped FedEx Freight and Con-way Freight gain market share at the expense of YRC, but it also led to steep quarterly losses at those companies, forcing restructuring and leadership changes at both carriers.
In the last month, John G. Labrie, Con-way Freight’s former president, left “to pursue other interests,” and Douglas W. Stotlar, president and CEO of parent company Con-way, grabbed the wheel at the LTL unit. Also in September, FedEx Freight said it would merge its long-distance and expedited LTL networks by Jan. 31, 2011.
YRC Worldwide actually improved its yield, a measure of pricing, in the second quarter, while pricing at FedEx Freight and Con-way Freight weakened year-over-year despite freight increasing as much as 30 percent from a year earlier.
When word of YRC’s GRI, broached in a letter sent to customers Sept. 2, spread at the Dahlman Rose Global Transportation Conference in New York last month, trucking executives greeted it as a “positive” step for YRC and the industry.
Trucking companies typically announce GRIs around the new year, but YRC’s early rate action is a sign that shippers should prepare for a stronger LTL rate push this fall.
“I thought it was right on,” FedEx Freight President and CEO Bill Logue said of the rival carrier’s GRI. He wasn’t surprised by the size of the rate hike. “You could say that the surprise was that it could have been more,” Logue told The Journal of Commerce.
Speaking at a U.S. Chamber of Commerce event in Washington, Logue called YRC’s early rate action a positive development. “It sends a good message that this industry is focused on what is recoverable.”
A FedEx spokesman said the company is still studying LTL pricing. “FedEx is evaluating market conditions, but we have made no final decisions regarding the timing or the magnitude of any price changes,” spokesman Maury Lane said.
Con-way Freight isn’t planning an “out-of-cycle” GRI, according to spokesman Tom Nightingale. “We are selectively evaluating customers in areas where we have a tightening of capacity and dealing with those customers on a one-on-one basis,” he said. “The reality is, the market still has overcapacity, not as much as it has had in the recent past, but there is still overcapacity.”
Trucking analyst David G. Ross of Stifel Nicolaus believes carriers will remain focused on service and pricing, as opposed to market share, for some time to come. “We still believe carriers should maintain capacity discipline and opt for rate increases and margin expansion and earnings growth over volume and revenue growth for the next couple of years,” he said in a Sept. 27 note to investors.
Trucking companies pressed by shippers could point to their oceangoing counterparts. Mediterranean Shipping Co., Maersk Line and OOCL all announced general rate increases that took effect Oct. 1.
Contact William B. Cassidy at email@example.com.