LONG BEACH, California — Softness in truckload pricing in the first quarter hasn’t crossed the median into less-than-truckload (LTL) lanes, according to Old Dominion Freight Line (ODFL).
The second-largest US LTL carrier said Tuesday its shipment volume increased 2.1 percent year over year in February, while revenue per day rose 7.5 percent thanks to an increase in yield.
So far this quarter, ODFL's LTL revenue per hundredweight has grown 9.6 percent compared with the same period last year. LTL tons per day decreased 1.5 percent due to a 3.6 percent decrease in LTL weight per shipment. That’s certainly a different environment than a year ago, when LTL tons per day jumped 17.9 percent and shipments rose 13 percent from 2017 levels.
Last year, ODFL increased revenue 20.4 percent ($685 million) to just over $4 billion, boosting net income 30.6 percent to $606 million. That made North Carolina-based ODFL the fastest-growing US LTL trucker last year and the second-largest by revenue, trailing only market leader FedEx Freight, according to data from SJ Consulting Group.
Positive economic indicators
The beginning of 2019 included a few seasonal challenges, with lower-than-expected volumes, Greg C. Gantt, president and CEO of ODFL, said in a statement. “Customer demand continues to be favorable, however, and the domestic economy continues to show strength,” Gantt said. US economic growth is expected to slow from 2.9 percent in 2018 to 2.4 percent this year.
“The US economy has some solid foundations,” IHS Markit chief economist Nariman Behravesh said Monday at the 2019 TPM Conference in Long Beach, California. “The most solid is US consumer spending. The drivers of consumer spending like wage growth, employment growth, low inflation, they’re all helping the consumer,” Behravesh said.
US GDP expanded more rapidly than most economists expected in the fourth quarter, rising 2.6 percent, according to the initial estimate released Feb. 28 by the US Bureau of Economic Analysis. Most economists expected US GDP to rise between 1.8 and 2.2 percent.
LTL carriers such as ODFL also receive a boost from the US industrial economy, which Behravesh said is healthy, especially in comparison with manufacturing in Europe and China. The Industrial Production Index produced by the Federal Reserve Bank of St. Louis hit an all-time high of 110.1 points in December before slipping to 109.4 points in January.
That’s still 6 points higher than the index’s reading a year ago, though, and 7.9 points above its most recent low point of 101.5 in March 2016, the nadir of what’s called an “industrial downturn.” The Institute of Supply Management (ISM) Purchasing Managers' Index (PMI), which tracks manufacturing growth, rose 2.3 percentage points to 56.6 in January, and ISM cited “strong demand and output.”
“Shippers certainly don’t think there’s going to be a downtick,” Steve Hartsell, vice president of field sales for ODFL, said in a recent interview. “I have spoken to a lot of customers, and they seem to be excited.” That optimism contributes to what ODFL sees as a “favorable LTL pricing environment” that supports increases in LTL revenue per hundredweight or yield.
By nature, LTL is insulated to an extent from the spot and contract pricing swings hitting the US truckload market. Speakers at the 2019 TPM Conference here see the truckload market as “muddy,” characterized by uncertainty over the outlook for both volume and pricing this year after a 2018 in which contract rates surged 14 percent from 2017. In addition, the shutdown of New England Motor Freight (NEMF) reduced LTL capacity, at least in the Northeast.
“Their bankruptcy will create some opportunity for us,” Hartsell said. “We’ve been in the Northeast forever and have a regional hub in that area. The NEMF bankruptcy “was a very big shock to us,” he said. “If you couldn’t make it in 2018, I don’t know when you can make it.”