Trucking companies hauling less-than-truckload freight should be able to hold onto the pricing power they’ve gained over shippers through 2014 at least, increasing rates and yields in 2012 and 2013, a Wall Street transportation analyst says.
But those LTL carriers will have to use pricing power more broadly and exercise fiscal and operating discipline to cover their own cost of capital, David Ross, a managing director at Stifel Nicolaus, said in an April 5 note to investors.
Ross issued his report on LTL trucking as publicly owned carriers prepare to announce their first quarter earnings. UPS and Old Dominion Freight Line will release results April 26, Arkansas Best on April 27 and Con-way May 1.
For LTL carriers, freight was good and pricing was better in the first quarter of 2012, Ross said, with shipments and tonnage higher than year ago levels and yield — an indicator of pricing — keeping the momentum it gained in 2011.
“Our outlook for LTL industry tonnage growth through 2013 is for a slow, potentially choppy recovery,” he said, with 1 to 2.5 percent annual freight growth. More housing activity should boost freight growth to 2 to 3 percent in 2014.
Stifel Nicolaus expects LTL yields, excluding fuel surcharges, to climb another 4 to 5 percent in 2012, as carriers maintain pricing “rationality” or discipline and LTL capacity, measured by people and trucks moving freight, gets tighter.
The LTL industry is still in the first half of a margin expansion from the record-low point it hit during the recession. Tight truckload capacity may shift some freight to LTL networks, increasing lane and load density over the next few years.
The LTL trucking industry grew 11.6 percent in 2011, pushing total U.S. LTL revenue past $30 billion for the first time since 2009, according to SJ Consulting Group. But total LTL revenue is still 8 percent lower than in 2008.
Although LTL prices have risen, they are still not where they need to be for carriers to earn their cost of capital, Ross said. “We are hearing of cheap pallet rates, poorly rated FAK business with 3PLs and big shippers not budging on price,” he said.