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LTL Carriers Rebuild
Monday, 15 March 2010 00:00
As recovery gains strength, less-than-truckload operators are emphasizing improving networks, services

At the end of 2009, the less-than-truckload industry had been razed by a price war that burned away carrier profits. Many believe 2010 will be a year of rebuilding for LTL carriers as they seek firmer footing in a market awash with overcapacity. It’s time, trucking analysts and executives say, to stop the price-cutting and strengthen LTL networks and core services.

It’s likely to be a year of “conservative” LTL growth, as one carrier executive put it, as shippers and carriers lay the groundwork for greater expansion in 2011.

“I think the industry will grow back this year, there will be more transactions available and the pricing will be a little better,” said Rick Keeler, senior vice president of pricing and strategic development at Old Dominion Freight Line. “But we’re not going to have cheerleading squads jumping up and down.”

The price war of late 2009, which had some carriers firing off 80 to 90 percent discounts, ended with the primary target, financially wounded YRC Worldwide, still standing. With the support of its banks, its union and, the carrier hopes, an increasing number of shippers, the $5.3 billion company seems certain to survive into 2011.

YRC’s most aggressive competitors haven’t stopped looking for the company’s shippers, but they appear to have called a truce on pricing battles as they try to rebuild their own rate bases.

“The biggest issue we face is definitely price,” John Labrie, Con-way Freight’s president, told analysts last month. “We’re trying to maintain our volume and increase overall price. That’s going to be hard to achieve with the excess capacity out there, but we’re working through it account by account.” “As an industry we’ve got to get back to selling the value we have.”

That account-by-account, lane-by-lane, pallet-by-pallet approach is evident across the industry, and it will mean hard and painful work at some carriers.

A year after its merger of Yellow Transportation and Roadway Express, YRC again is asking the Teamsters union to approve a change in operations that would reconfigure its network, while reportedly trimming its union and nonunion payroll.

The company, which shed hundreds of terminals over the past two years, is trying to eliminate duplicate facilities and scale back others to match low freight demand.

Re-engineering may be the LTL industry’s theme for 2010. Companies of all sizes are shortening transit times, rethinking terminal networks and finding ways to load more freight into trailers and increase density in their shortest lanes. Those that avoided the most aggressive discounting last year while maintaining at least some profitability—and there weren’t many—will be in the best position not just to rebuild their business but also to expand it.

“This is a slow, steady recovery, and we’re seeing consecutive month-over-month growth over the bottoms we had a year ago,” Old Dominion’s Keeler said. “We’ve come back in December, January and February, and we’re seeing improvements over last year’s numbers, finally, in shipments, revenue and tonnage.”

ODFL has the distinction of being the only one of the six big publicly held LTL carriers to post a profit for 2009, even if it was half the profit the company had in 2008.

The Thomasville, N.C.-based carrier earned $34.9 million on $1.25 billion in revenue in 2009. That compares with hundreds of millions of dollars in overall losses at the other publicly traded LTL carriers, led by YRC Worldwide, which lost $899 million before taxes for the full year.

Analysts attributed ODFL’s profitability to its hard-line stance on pricing, even if that meant surrendering some freight to competitors willing to offer lower rates. “ODFL has remained remarkably price-disciplined, reflected in its superior operating profit performance,” said Jon A. Langenfeld, trucking analyst with R.W. Baird & Co.

“We didn’t play the price game, except where we had to,” Keeler said. That means, unlike some competitors, ODFL doesn’t have to rebuild a book of business devalued by excessive discounts. And some shippers who were wooed away during the price war are bringing their business back, Keeler said, putting service ahead of price.

“We’ve had customers who left us for a 5 percent better price come back within a month,” he said. “They can’t afford to lose their customers due to shoddy service.”

LTL pricing is still soft, but it’s improved from “absolutely horrible” to “just bad,” Keeler said. The market “is not quite as aggressive,” he said. “Some of our customers are being hit with rate increases by our competitors, and that’s a good sign.”

ODFL is focused on improving productivity, managing cost, maintaining a high level of service and expanding ancillary services that add value for shippers, he said.

“We’re running 98 percent on time, and even when freight is down, we don’t hold it. Our transit times are about as tight as they’re going to get. We’ve been running freight from Los Angeles to Atlanta in three days for more than five years,” Keeler said.

Productivity is up on the dock and in pickup and delivery operations from a year ago, and claims are down. “We had about a 0.6 percent claims ratio for all of last year, and we’re actually beating that this year. We’ve got the fewest claims relative to revenue that we’ve ever had,” Keeler said. ODFL also is expanding beyond its core LTL service into warehousing and distribution services, opening a new warehouse and headquarters for its warehousing division in Thomasville.

“As an industry, we’ve got to get back to selling the value we have that differentiates us to our customers,” Keeler said. When carriers put price first, “they commoditize their product,” he said. “If enough of them do it, they commoditize the industry”

Journal of Commerce, 3/15/2010