“Capacity is now lined up pretty
well with the needs of the market,”
said William J. Logue, president of
FedEx Freight, the LTL unit of
Memphis-based FedEx Corp. and the
industry’s largest player by revenue.
No carrier executive who survived
the past six hellish years will get carried away with LTL’s outlook. For
them, just being able to string “LTL”
and “stability” in the same sentence
is an achievement.
“The industry is more focused and
stable,” said Logue. “The up-and-
down swings are not there now.”
“I’m a lot more comfortable with
where we are today than where we
were two years ago,” said Jeff Rogers,
president of YRC Freight, the long-
haul unit of Overland Park, Kan.-
based LTL carrier YRC Worldwide.
Rogers said pricing, while still
competitive, is firm, stable, and consistent. “Everybody is being rational
at this time,” he added.
Old Dominion Freight Line Inc.,
considered by many to be the industry’s best-run carrier, declined comment for this story. However, its executives were quoted in
an analyst call to discuss first-quarter results as saying that
pricing was “stable” and “good.” Richmond, Va.-based Old
Dominion did not cut its rates nearly as sharply as its rivals
did during the downturn, a reflection of its pricing discipline and its already-strong financial position heading into
the cycle.
BETTER DAYS TO COME?
There may be further room for pricing improvement.
According to an April 29 analysis from Morgan Stanley &
Co., carrier margins can increase an additional 4 to 6 percent
from current levels before they reach what would be considered normalized returns on invested capital. Provided a normal historical recovery takes hold, there is still opportunity
for further pricing gains, according to the firm.
The firm noted that the margins of the most aggressive
discounters during the down cycle, FedEx Freight and Conway Freight, the LTL unit of Menlo Park, Calif.-based Conway Inc., are still below the levels of the 2005 peak.
The Morgan Stanley analysis said improving economic
fundamentals and an “oligopolistic industry structure”—
10 carriers account for 73 percent of total industry rev-
enue, by its estimate—“reinforce an already weak incentive
to discount” among the carriers and are “supportive of
price discipline.”
In the past two to three years, truckload and intermodal
rates have been rising, while LTL prices have remained
largely flat to down. The LTL sector is becoming the benefi-
ciary of that trend, as intermodal and truckload shippers
turn to the segment to get better pricing.
David G. Ross, transport analyst for Stifel, Nicolaus &
Co., said the continued tightening of truckload capacity in
coming years could result in “overflow freight” that will add
all-important traffic density on LTL routes. Ross said LTL
yields—excluding the impact of fuel surcharges—should
increase up to 5 percent in 2012 and predicted carriers
would enjoy pricing power through 2014.
A rising tide is not lifting every boat, however. ABF
Freight System, the LTL unit of Fort Smith, Ark.-based
Arkansas Best Corp., has, like its competitors, increased its
rates. However, analysts said the resultant tonnage losses
have put a unique hurt on ABF’s network utilization
because as one of only two unionized LTL carriers, it has the
industry’s highest cost structure. The company said that
first-quarter 2012 tonnage fell 12. 5 percent from the 2011
period, and the burdens of a high cost structure and unfavorable tax rates resulted in a higher-than-expected $18.2
million quarterly loss.
YRC, the other unionized carrier and one that faced
insolvency in late 2009, has in recent years won a series of
controversial cost concessions from the Teamsters union as
a trade-off for its survival. ABF had sought similar give-backs from the Teamsters but didn’t get them. It has also
sued YRC and the union on grounds their pacts fell outside
the national agreement governing labor relations with
both carriers and are thus illegal. ABF declined comment
for this story.
