Speeding in Reverse

Less-than-truckload carriers are seeing demand leave the market faster than they can withdraw capacity, and they are trying to catch up.

FedEx Freight and YRC Worldwide, two of the largest players in the LTL business, said they are making new cutbacks amid signs that the long-struggling domestic trucking market is in full retreat.

YRC said it will extend the consolidation it is undertaking at its national network business to its regional LTL operation by April 6. YRC will close 11 terminals at USF Holland, a unit hit hard by the decline in automobile and other manufacturing in the industrial Midwest, and will have the sites served by another subsidiary, New Penn.

That announcement came as FedEx Freight, which posted double-digit growth as recently as the last fiscal year, announced an operating loss of $59 million in its fiscal third quarter, which ended on Feb. 28. Revenue fell 20.9 percent on a 13 percent drop in average daily shipment count.

The LTL freight division at FedEx said it will extend its cuts in capacity, jobs and employee pay.

The new cutbacks at FedEx and YRC suggest that diminishing freight demand and growing shipper pricing power are taking a toll on carrier operations.

“We believe USF Holland’s terminal closures and FedEx Freight’s (quarterly) results highlight a very challenging LTL marketplace,” said Justin Yagerman of Wachovia Securities. “Unfortunately for the industry, we view these terminal closings as a rationalization of underutilized capacity, and not as an opportunity for freight to be redistributed to the industry.”

USF Holland, based in Holland, Mich., will shut down terminals in Richmond, Va.; Wichita, Kan.; Albany and Syracuse, N.Y.; Allentown, Bedford, DuBois, Harrisburg, Wilkes-Barre and Philadelphia, Pa.; and Baltimore.

Regional LTL New Penn and YRC, the newly branded long-haul network, will start making Holland’s deliveries on April 6. Holland will continue making pickups at the 11 affected locations through April 2, YRC said.

YRC expects to get $25 million to $30 million in annual savings at the regional division, while incurring $8 million to $10 million of one-time shutdown costs.
FedEx Freight’s loss “reflects the extraordinary decline in demand for freight services, the continued competitive pricing environment, costs related to the consolidation of our freight regional offices and severance charges from personnel reductions,” the company said. Yield declined 7 percent because of lower fuel surcharges and tougher pricing competition.