An oligopoly can cure many ills. Take the less-than-truckload (LTL) sector, which since last fall has struggled with
declining volumes triggered by persistent weakness in the
nation’s industrial production, LTL’s bread and butter.
Shipments in the second quarter, typically the sector’s stron-gest quarter of the year, fell 1 to 2 percent from the 2015
period, while tonnage dropped 3 percent owing to a decline
in the average weight per shipment, according to industry
data analyzed by LTL carrier YRC Worldwide Inc.
Yet YRC estimated that contract rates, on average, rose 3
percent year over year after backing out the impact of die-sel-fuel surcharges, which have fallen along with the price
of oil and diesel.
The divergence between volume and pricing trends was
clearly evident in the second-quarter results from Saia Inc.,
an LTL carrier based in Johns Creek, Ga. Saia reported in
August that its daily tonnage, on a year-over-year basis, had
fallen for four consecutive months through the end of July.
It also reported a decline in second-quarter revenue and
a worsening operating ratio. Yet rates on Saia’s contract
renewals rose a healthy 5. 4 percent in the second quarter.
LTL carriers have enjoyed contract rate leverage for
some time. In fact, Fort Smith, Ark.-based ArcBest Corp.,
Thomasville, N.C.-based Old Dominion Freight Line Inc.,
Overland Park, Kan.-based YRC, and Saia all posted stron-
ger renewal rates through all of 2015 than in the first two
quarters of 2016, according to data from the companies.
It may seem odd that carriers can push up prices amid
a macro environment that, at best, could be described as
mediocre. The reason may lie with market concentration.
The top 10 LTL carriers control 77 percent of the $37 billion market, while the top 25 control 94 percent, according
to data published in late June by BB&T Capital Markets,
an investment firm. Given the dominance of a few players, there isn’t much room for cost-conscious shippers to
maneuver as long as carriers stay disciplined.
The one near-term hope for shippers is that the carriers
will decide to undercut each other should traffic levels
worsen, something they did between 2008 and 2010 with
disastrous results. LTL executives have said they have no
plans to revisit that strategy. For the most part, they said,
pricing remains rational.
It has to, LTL executives have argued. Unlike the
much-larger truckload industry, which sticks to relatively
straightforward point-to-point services, an LTL network is
quite complex, with a phalanx of terminals and lanes with
specific origin and end points. LTL carriers must recoup
the significant costs of terminal networks to handle their
breakbulk traffic. In addition, LTL driver wages are significantly higher than the wages of the typical truckload driver.
Faced with high operating expenses, LTL carriers
can ill afford price wars that will compress their
bottom lines.
What the truckload industry does have that LTL
doesn’t—regrettably for truckload carriers—is
extreme fragmentation. The largest truckload carrier by sales, Phoenix-based Swift Transportation
Co., has a market share of a bit more than 1 percent. A sluggish demand outlook, combined with
a proliferation of players, has put many truckload
carriers in the hole during contract negotiations.
Truckload and logistics giant Werner Enterprises
Inc. said recently that customers’ increasing
demands for rate reductions have forced it to shed
accounts where pricing was “not sustainable.”
Omaha, Neb.-based Werner said it expects traffic
to rebound in 2017.
Jamie Pierson, CFO of YRC, said the truckload
market is “as fragmented as it’s ever been.” By
contrast, activity in his sector is “as concentrated
as it’s ever been.” Pierson said YRC has forecast
a 2- to 3-percent increase in industrial production during 2017, which, if accurate, would be
a significant improvement over current trends.
Asked if YRC would be satisfied with that type
of bump, Pierson replied, “We just want to see
growth.”
24 DC VELOCITY SEPTEMBER 2016 www.dcvelocity.com
newsworthy
Business down, prices up: For LTL carriers, oligopolies are a good thing
Old Dominion Freight Line Inc. has relocated its 38-door Colorado
service center to Grand Junction, Colo., to allow for better reach,
efficiency, and operational security. … Cushman & Wakefield
has secured an industrial lease renewal and a new commitment
totaling 318,000 square feet of industrial space for Yandell
Truckway’s Santa Clara Warehouses division in Benicia, Calif. …
Seizmic Inc., an engineering firm that analyzes material handling
and storage systems for structural and engineering integrity, has
doubled its office and manufacturing space in Los Angeles. …
Crown Equipment Corp. has opened three new sales and service
locations to support the material handling product needs of customers in Central and Western Oklahoma and North Texas. … NFI
has broken ground on a facility for packaging provider Quality
Packaging Specialists International LLC at NFI Park in Florence
Crossings, N.J. … The Valspar Corp. has selected Kenco Logistics
to provide warehouse, production, and IT services at two key U.S.
locations; a 400,000-square-foot coatings facility in Romeoville,
Ill., and a 72,000-square-foot furniture-care facility in Grand
Rapids, Mich. … Dachser SE, parent company of Dachser USA Air
& Sea Logistics Inc., has announced plans to build new facilities in
Austria, France, and Germany. … Amazon.com will locate a new
855,000-square-foot fulfillment center in the Kansas City area.
ground breakers
