A fundamental improvement in the industrial U.S. economy is driving more freight to the largest less-than-truckload carriers ahead of trucking’s fall peak shipping season.
"While tight truckload capacity and poor rail service are undoubtedly helping (LTL carriers), we believe absolute demand has improved," said transportation analyst Thomas S. Albrecht.
That improvement will contribute to upward pressure on LTL pricing as goods begin to flow from coastal warehouses to inland distribution centers and consignees this fall. It will also give LTL carriers a chance to build stronger operating margins and lower operating ratios.
In a Sept. 10 note to investors, Albrecht, who works for BB&T Capital Markets, noted U.S. industrial production grew at an average rate of 4.7 percent over the last three quarters. That compares with a 2 to 3 percent average growth rate over the previous two years, he said.
Albrecht also noted the Institute for Supply Management's PMI Index, which measures manufacturing activity, hit a three-year high reading of 59 in August. The ISM new orders index rose 3.3 points from July to 66.7 last month, its highest level since April 2004.
"The freight components of GDP have strengthened," he said. That strength is evident in tonnage hauled by Old Dominion Freight Line, up 19 percent in August; Saia, up 7.2 percent last month, and ABF Freight System, up 6 percent this quarter to date, said Albrecht.
Although YRC Worldwide hasn’t issued a quarterly update, BB&T estimates YRC Freight’s tonnage is up 5 to 6 percent to date this quarter, Albrecht said. From chemicals to automobile production, manufacturing kept the economy humming and freight moving this summer.
Truckload carriers are also reaping benefits. At Landstar System, the fifth-largest truckload carrier, consolidated revenue increased more than 20 percent year-over-year in the first two months of the third quarter, Chairman and CEO Henry Gerkens told analysts last week.