The less-than-truckload industry is shrinking its way toward profitability as carriers struggle to emerge from three years of decline.
If battered LTL carriers haven’t quite turned a corner, they believe they’re closer. They’re hoping to catch up with their more profitable truckload counterparts in 2011.
Shippers this year may detect an LTL realignment that is gathering momentum amid an uneven recovery among the largest carriers by sales. Some of the country’s largest LTL carriers aren’t as large as they once were in terms of revenue or physical footprint. And “mid-tier” multiregional and regional companies are expanding territories and adding services.
It’s an LTL world where service isn’t as closely tied to size as it was in domestic trucking’s heyday, when three sprawling carriers dominated the business and shipper choices. More carriers are able to move freight quickly throughout North America with smaller, more agile networks and partnerships.
That’s opening new realms of competitive potential for a broader base of carriers and creating more opportunity for shippers rebuilding supply chains.
Higher tonnage and shipments, better yield and firmer pricing, and the steady leaching of excess capacity in the form of terminals in the fourth quarter produced narrower losses for troubled carriers and higher profits for healthier ones.
Still, the combined average operating ratio for eight of the largest public LTL carriers was 99.9 percent, right at the edge of profitability — or loss.
“That’s better than 103.1 for the fourth quarter of 2009, but worse than 97.8 for the third quarter of 2010,” said Satish Jindel, president of SJ Consulting Group.
Carriers are hoping the increased confidence consumers demonstrated in January, when retail sales jumped 4.8 percent, will pull more fleets back from the edge and into the black. They’re also encouraged by the sixth straight monthly increase in manufacturing activity reported in January by the Institute of Supply Management.
Shippers can depend on one thing this year: LTL rates will rise. Carriers of all sizes are pushing to restore prices that plummeted during the recession and to heal deep wounds caused by a price war that took discounting to new lows in 2009.
They’re not just raising rates; they’re also paying more attention to yield per load, customer and freight mix and other factors that affect their profitability.
Some carriers, notably Old Dominion Freight Line, have been more successful than others, but carriers say more disciplined pricing and yield management is spreading. Increases in revenue per hundredweight at some of the nation’s largest publicly owned LTL carriers show rates are heading up a slow incline.
Pricing “is much improved over last year and getting stronger all the time,” William D. Zollars, chairman, president and CEO of YRC Worldwide, said on a conference call with investment analysts. “Our contractual (rate) increases continue to track ahead of last year.”
Revenue per hundredweight, or yield, rose 1.6 percent year-over-year at YRC’s regional carrier group and 4.2 percent at YRC National in the quarter. The gains in pricing strength were even better at ODFL (5.6 percent), FedEx Freight (7 percent), Con-way Freight (7.1 percent) and UPS Freight (8.7 percent).
Although ODFL the smallest of the six public LTL carriers with more than a billion dollars in annual revenue, it leads the others in profitability.
The North Carolina-based carrier’s net profit for 2010 rocketed 116.9 percent to $75.7 million on a 19 percent increase in revenue to $1.5 billion. In 2009, ODFL was the only one of the six to report a profit. In 2010, it was joined by Con-way Freight, which reported a $28.9 million operating profit on $3.1 million in revenue.
UPS doesn’t issue separate UPS Freight earnings from the results of its UPS Supply Chain division, but the LTL operator broke the $2 billion revenue ceiling in 2010 and shot up 20.1 percent in the fourth quarter, to $526 million. SJ Consulting estimates UPS Freight’s operating ratio to be about 98.7, putting it in the black.
At ODFL, a 19.9 increase in shipping volume drove a 20.5 percent tonnage gain year-over-year in the last quarter, said David S. Congdon, president and CEO.
“Some of this increase can be attributed to the continued growth in U.S. industrial production and manufacturing, which has not only boosted volumes for transportation providers but also decreased excess capacity in our industry,” he said.
That’s good news for carriers still struggling the most: YRC Worldwide, ABF Freight System and FedEx Freight. YRC Worldwide lost $324 million on $4.3 billion in revenue last year, ABF lost $58 million on $1.5 billion in revenue, and FedEx Freight lost $250 million over its last four quarters on $4.8 billion in sales.
YRC late last year proposed closing 31 terminals, ratcheting its network down to about 320 facilities, and, if it gets permission from the Teamsters union, it may go further. FedEx chopped 100 terminals from its network through Jan. 31 as it combined its two LTL operations, FedEx Freight and FedEx National LTL.
Reduced LTL capacity “is an issue that has not been made enough of,” said Mark Montague, a pricing/rate analyst at TransCore Freight Solutions. LTL carriers are squeezing capacity not just by streamlining but also through acquisition and consolidation, Montague said, pointing to Vitran’s purchase of Milan Express last month.
“You’re going to see some of those LTL acquisitions continue,” said Montague, “and that will drive capacity out and put pressure on LTL and truckload rates as well.”
Contact William B. Cassidy at email@example.com.