Winter storms, new technology and other expected and unexpected costs may carve $14 million from Con-way Freight’s first quarter earnings, but the less-than-truckload trucking company said yield, a measure of pricing, is rising, despite lower tonnage levels. Con-way also reported progress on initiatives designed to improve pricing and optimize its LTL network.
But the “headwinds” reported by Con-way Freight, coupled with a flat quarter in terms of revenue and a 99.7 percent operating ratio at FedEx Freight and a major change of operations on the table at YRC Freight show the nation’s largest LTL carriers are still struggling to find firm financial footing in a slow economic recovery nearly four years after the end of the so-called Great Recession.
Con-way Freight, the second-largest less-than-truckload company, said its revenue per hundredweight, or yield, will increase 3.5 percent year-over-year in the first quarter, excluding fuel surcharges. That’s a sign Con-way’s efforts to raise rates are working, though the increase is slowing. In the fourth quarter of 2012, Con-way Freight’s yield rose 4.2 percent, excluding fuel surcharges. A year ago, yield rose 4.3 percent.
The average year-over-year percentage increase in LTL yield among carriers tracked by The Journal of Commerce has dropped from a peak of 11.3 percent in the third quarter of 2011 to 2.4 percent in the fourth quarter of 2012. The 25 largest LTL carriers in North America are still about $870 million short of the combined revenue they enjoyed in 2008.
FedEx Freight revenue in the three months that ended Feb. 28 was almost flat compared to the year-ago period, rising $3 million to $1.24 billion. The largest LTL carrier swung from a $1 million loss in its year-ago quarter to a $4 million operating profit, but the company’s operating ratio for its third fiscal quarter rose to 99.7. FedE Freight’s average LTL yield increased 2 percent year-over-year in the period.
YRC Freight, the third-largest stand-alone LTL carrier, saw fourth quarter operating revenue fall 3.4 percent to $777.2 million but swung from a $26.7 million operating loss in the last quarter of 2011 to a $21.1 million operating profit in the same period in 2012. The Overland Park, Kan.-based company this month proposed shutting 29 terminals as part of a network redesign to speed freight flow and increase efficiency.
Con-way Freight, the $3.3 billion LTL unit of $5.6 billion trucking and logistics company Con-way, is in the midst of a three-year plan to improve its efficiency and bolster profits that plummeted 69 percent in 2009 and 50 percent in 2010, bottoming at $28.9 million before rebounding 314 percent in 2011 to $119.8 million. Con-way Freight increased that profit a more modest 20.1 percent in 2012 to $143.9 million.
The three-year plan includes lane-based pricing and line-haul optimization, as well as the rollout of “lean” operating practices across Con-way Freight’s network of 303 terminals. In early March Con-way Freight named former Menlo Logistics and Ford Motor supply chain executive Brian McGowan vice president of lean, indicating a company-wide attempt to locate and cut any lard holding back operations.
“Tonnage trends, while below last year, have been relatively stable throughout the first quarter and our core operational performance is trending in the right direction,” said Douglas W. Stotlar, Con-way president and CEO. “Despite the near-term headwinds at Con-way Freight, confidence in our key initiatives and the ability to expand margins, particularly in the second half of 2013, is being reinforced each day.”
Those margins could expand even faster if Con-way Freight, and other LTL carriers, took a page from the parcel carrier playbook and charged for correct shipment weight and made better use of accessorial charges, said Satish Jindel, president of SJ Consulting Group, a Pittsburgh-based transportation research and consulting firm and author of the JOC’s list of Top 25 LTL Trucking Companies.
“They’ve got to get their pricing in order and their network aligned and charge customers for what they’re shipping,” said Jindel. “There’s 2 to 3 percent margin being left on the dock for not billing correct weights and not charging accessorials” for specialized services, he said. “Saia has been doing it for a year, and look at the results they’ve achieved.”
In 2012, multiregional LTL carrier Saia increased revenue 6.6 percent to $1.1 billion, operating profit 109 percent to $58.7 million and net profit 180 percent to $32 million. Strong yield increases — at 6.7 percent more than double the industry average for 2012 — helped Saia boost its top and bottom lines, even as the Georgia-based carrier moved less freight, according to SJ Consulting Group.
Last year, Saia raised rates on shipments receiving a minimum charge, restructured pricing for some of its third-party logistics customers and launched a sales effort to get more freight from smaller shippers — all steps Jindel thinks the rest of the LTL industry, including its biggest players, could follow to improve profitability. “This is the best environment to do it now, everybody is trying to get their margin up,” he said.