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Transportation News Bulletins - LTL and TL

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LTL’s Rapid Downsizing
Monday, 15 March 2010 00:00
Industry shrank 25 percent in 2009, and 25 percent since 2006, study shows

The recession pummeled less-than-truckload carriers in 2009 without regard to size, driving revenue down at a double-digit rate at all of the top 25 LTL trucking companies.

The steep downturn triggered by the global financial crisis in late 2008 spurred the worst contraction in LTL freight revenue in decades, according to The Journal of Commerce’s list of the Top 25 LTL Carriers, prepared by SJ Consulting Group.

The deep declines weren’t evenly spread around, however; as the industry’s revenue collapsed, market share shifted, with the three largest companies drawing closer than ever in market share.

The study throws a spotlight on the severe damage suffered by carriers across the board last year. The LTL industry lost a quarter of the revenue it had in 2008—$8.1 billion—as sales plunged 24.4 percent from $33.3 billion to $25.2 billion. The top 25 carriers, which together represent 87.5 percent of the LTL market, saw their combined revenue fall 23.8 percent last year.

In comparison, the LTL trucking industry shrank less than 1 percent in 2008, and revenue for the carriers was basically flat in 2007 compared to the previous year, despite a downshift some call a ‘freight recession” that began driving down sales for many carriers as early as 2007.

Unusually high fuel surcharge revenue masked declining revenue from tonnage and shipments in 2008, but as the national average diesel price fell from the July 2008 high of $4.76 a gallon to a 2009 low of $2.01 in March, those surcharges were stripped away, baring the real damage done to trucking and freight shipping by the recession.

Over the past three years, the LTL industry lost a quarter of the $33.7 billion in revenue it had in 2006, the SJ Consulting Group study shows, with most of that loss in 2009.

The study ranks the top 25 LTL trucking companies by LTL freight revenue, excluding revenue from logistics services and other types of carriage wherever possible.

As such, the study didn’t delve into the profitability of the industry, but at least five of the top six publicly held carriers—all with more than $1 billion in sales—reported losses for the full year. Only Old Dominion Freight Line of Thomasville, N.C., was in the black for the full year, reporting $34.9 million in net profit—a decline of 49.2 percent from 2008.

In 2009, listed companies’ LTL revenue ranged from $104 million at Oak Harbor Freight Lines of Auburn, Wash., to $4.4 billion at YRC Worldwide, according to SJ Consulting. The top 25 LTL carriers saw revenue drop anywhere from 10 percent to 47 percent.

However, all the carriers among 2008’s top 25 survived 2009. A few carriers on the list in previous years were dropped, however, as their revenue fell below the $104 million threshold set by Oak Harbor in 2009.

The best year-over-year result came from New England Motor Freight of Elizabeth, N.J., which saw LTL revenue fall only 10.1 percent from the previous year.

Central Freight Lines of Waco, Texas, fared worst, with a 47.3 percent drop in revenue. Owned by trucking entrepreneur Jerry Moyes, the regional carrier lost a major account and consolidated its network, SJ Consulting Group said.

The losses were deep enough to go around, however: Nine carriers saw revenue drop between 10 and 15 percent last year; seven saw a decline of 15 to 20 percent; six, a decline of 20 to 30 percent. Only two companies reported declines higher than that.

None of the carriers listed since 2006 went out of business during the recession, although acquisitions consolidated the industry and some companies shut down subsidiaries.

SJ Consulting’s research suggests how intense the competition heated up in 2009 between market leaders YRC Worldwide, FedEx Freight and Con-way Freight, as YRC Worldwide’s seemingly insurmountable market share lead began to whither amid reports of the company’s financial hardships and concerns among many shippers about its long-term viability.

The study ranks YRC Worldwide’s regional group—which consists of LTL carriers New Penn, Holland and Reddaway—separately from YRC National, the integrated nationwide operations of Yellow Transportation and Roadway now known as YRC.

YRC Worldwide is still the largest U.S. less-than-truckload operator, but its national and regional carriers’ share of total LTL revenue dropped 22.5 percent last year to 17.5 percent, according to a survey of the top LTL trucking companies.

That’s about a 30 percent reduction in market share for YRC Worldwide over the past three years. In 2006, YRC Worldwide had 25.1 percent of the LTL market, SJ Consulting said. That slipped to 24.3 percent in 2007 and 22.6 percent in 2008. That slide reflects a 44.3 percent drop in LTL revenue at YRC National, according to the study, which reports YRC Regional’s revenue declined 32.4 percent.

FedEx Freight and Con-way Freight, gained substantial share last year, in part through aggressive pricing that lured shippers away from YRC Worldwide.

FedEx Freight saw the largest gains, increasing its share of the LTL market to 14.4 percent at the end of 2009, the study said. That’s a 4.9 percent increase from the 13.7 percent share it held in 2008, and a 30 percent leap since 2006, when it had 10.2 percent of the LTL market. FedEx Freight acquired Watkins Motor Lines, now FedEx National LTL in 2006, which helped boost its share to 13.1 percent in 2007.

FedEx Freight’s LTL revenue fell 20.8 percent last year from 2008. But for the first time, it outpaced YRC National, a sign of deep network cuts made in the reorganization and consolidation of long-haul LTL operations at YRC Worldwide.

Con-way Freight’s market share rose 4.7 percent in 2009 to 10.2 percent, a 16.7 percent increase from 2006 when its share of the LTL market was 8.5 percent. Its LTL revenue slipped 14.6 percent in 2009, according to SJ Consulting.

Even as LTL’s new “Big Three” carriers draw closer in terms of market share, SJ Consulting’s study underscores the strong concentration of revenue within the industry.

Seven of the top 25 less-than-truckload carriers reported more than a $1 billion in revenue in 2009. Together, they accounted for $16 billion in LTL sales, 63.4 percent of the total revenue of all LTL carriers in the U.S.

That $16 billion is still 25.8 percent less than the $21.6 billion in LTL revenue the same carriers had in 2008.

In addition to YRC Worldwide, FedEx Freight and Con-way, the billion-dollar club includes UPS Freight, ABF Freight System, Old Dominion Freight Line and Estes Express Lines.

The recession squeezed the next revenue class, cutting the number of carriers with LTL revenue of between $500 million to $999 million from six to four last year. They were R+L Carriers, Saia Motor Freight Line, Southeastern Freight Lines and Vitran Express.

Two carriers with more than $500 million in LTL revenue in 2009 moved down to join six others in the $200 million to $399 million ranking, Averitt Express and AAA Cooper Transportation.

Other carriers in that revenue range were Central Transportation International, Roadrunner Transportation, New England Motor Freight, Pitt-Ohio Express, Dayton Freight Lines and A. Duie Pyle.

The number of carriers with less than $200 million in LTL revenue in the top 25 grew from three to five. They were New Century Transportation, Central Freight Lines, Daylight Transport, Wilson Trucking and Oak Harbor Freight Lines.

Journal of Commerce, 3/15/2010

 
LTL Is Half Full or Half Empty
Monday, 15 March 2010 00:00

Since trucking industry deregulation in 1980, more than 30 unionized, non-union, national and regional less-than-truckload carriers have left the market. However, only two new LTL carriers (Con-way Freight and American Freightways, now part of FedEx Freight) have entered the market.

Despite this contraction, publicly held LTL carriers collectively generated a loss in the fourth quarter of 2009 and operating margins for the entire industry are lower than those of parcel and truckload segments.

If the economy was the main reason for poor financial performance of LTL carriers, one would expect losses at the parcel carriers and at truckload operators. But the poor returns at public LTL carriers were the result of conditions specific to LTL. Bench-marking the LTL industry against the parcel carriers at one end of weight spectrum and the truckload carriers at the heavier end of LTL shipment sweet spot suggests LTL performance is not impressive.

In the deregulated era, the LTL market size increased from $15 billion in 1983 to $25.2 billion in 2009, representing a compounded annual growth rate of 2.2 percent. However, during the same period, the parcel market increased from $8 billion to $56 billion for a compounded annual growth rate of 7.1 percent. And during 2009, while LTL pricing declined 2.5 percent, parcel pricing managed an increase of 2 percent.

The parcel segment (with few competitors and high barriers to entry) and the truckload segment (low barriers to entry and thousands of competitors) historically also have generated higher operating margins (more than 5 percent for parcel and more than 10 percent for truckload carriers) than the LTL carriers (with 5 percent or less).

What makes the LTL industry more challenging than other segments is that there are so many large private, profitable and well-managed LTL carriers.

Although there are nine large public LTL carriers, they collectively represent about 60 percent of the market, leaving 40 percent in control of a few large private carriers. The private ownership of large carriers is an important part of the competitive landscape because these companies can take a longerterm investment approach to adding terminal capacity and other capital expenditure projects, and can maintain driver wages; public carriers are pressured to reduce those to maintain profit margins expected by public shareholders.

The top nine private LTL carriers collectively were profitable in 2009, while the top nine public LTL carriers had an operating loss for the year.

Under current circumstances, the industry outlook for next two years is not very bright. Even with projected double-digit increases in fuel surcharge revenue, and modest increases in tonnage and pricing during 2010 and 2011, the total size for the LTL market would only reach $27 billion in 2010 and $28 billion in 2011.

At a transportation conference hosted by BB&T Capital Markets in Florida last month, a panel of shippers pointed to reasons behind the LTL carriers’ problems: lack of operational innovation to allow for profitable handling of low-weight shipments, resistance to changes in pricing structure that would eliminate the freight classification system, and deployment of information technology in interaction with shippers.

One shipper said her company’s average weight per shipment had dropped from 1,200 pounds to 400 pounds in 10 years, and now many of those shipments are going to parcel carriers as part of their hundredweight service.

Parcel carriers have succeeded in doing so much that now 95 percent of more than 20 million parcels per day are tendered via electronic manifest. But less than 15 percent of LTL shipments are tendered using electronic manifest.

So what would it take for the LTL industry to get on a growth curve?

Although a dramatic reduction in capacity could raise pricing and operating margins, it would not contribute to growth of the industry. Instead, LTL carriers must look at what they can do within their operations to recover shipments lost to parcel and truckload carriers.

That would include such things as reconsidering the use of 53-foot trailers for local pickup and delivery when the shipment characteristics might not support use of such large equipment. But pricing also needs a closer look.

Pricing still depends on the national motor freight classification system, a carryover from the regulated era, and weight breaks in hundreds of pounds that do not work for lighter shipments. Carriers should deploy technology to improve the ability to capture true weight and cubic characteristics of the shipment. While parcel carriers change weights based on ounces, LTL carriers are reluctant to charge for even 25- pound changes in weight listed on the manifest.

Beyond this, LTL carriers must take measures to reduce network capacity by 30 percent or more if the industry is to improve profitability without major change in the GDP growth rate.

For lessons in how to do that, LTL carriers can look at the railroads and truckload carriers. Railroads, after all, have held onto their margins during this period, and the truckload carriers are more optimistic about improved pricing and demand in virtually the same economic environment as the LTL carriers.

Journal of Commerce, 3/15/2010

 
Think Globally Truck Regionally
Monday, 15 March 2010 00:00
Truckload carriers shorten their hauls; broaden their business to secure freight

The open road doesn’t have the allure it once did for some truckload carriers, or for their shippers.

Companies with business models once grounded in long-haul trucking are shortening trips and shifting resources to intermodal and other services as shippers re-engineer supply chains to bring distribution points closer to suppliers and customers.

The carriers are following the freight, and in 2010 that freight is flowing fastest in regional lanes, they say. For many, the shift means more than shorter trips as they seek to broaden their business, increase intermodal capacity and expand into more specialized services.

These trends have been under way for some time, but they gained speed in 2009 and are moving faster in 2010 as the nascent recovery puts more freight in motion.

“Manufacturers, vendors and retailers are all relocating closer to reduce transportation spend,” said Herb Schmidt, president of Con-way Truckload in Joplin, Mo. “That’s created far more regional opportunities than there were 15 or 20 years ago.”

Now those opportunities abound, he said. “A typical bid package from a Fortune 500 company is 70 percent regional in nature, only 30 percent long-haul.”

That increasingly regional focus among shippers was reflected in many carrier length-of-haul figures reported in the fourth quarter. USA Truck, Van Buren, Ark., cut its average length of haul 14.2 percent from a year earlier, to 594 miles, noting it is transitioning to shorter lanes “where freight is more abundant” and it is able to load its trucks more times per week.

Omaha, Neb.-based Werner Enterprises reduced its average length of haul 12.6 percent to 463 miles. Long-haul, one-way trips now represent about one-sixth of Werner’s total truckload business, down from about one-third a few years ago, said Robert E. Synowicki Jr., executive vice president and chief information officer. “We’ve seen a lot of shifting between long-haul, one-way freight and different regional markets.”

The question is whether the shift is a short-term response to economic conditions or a fundamental change in distribution patterns. Moves at several carriers suggest they believe there is a deep underlying change in shipping patterns, but there also is an impetus in the trucking industry because the shorter hauls are more attractive to a larger pool of drivers, making recruiting and retaining drivers easier.

Green Bay, Wis.-based Schneider National is aggressively expanding its regional operations in a bid to radically change its freight mix. In 2008, only 5 percent of Schneider’s freight was regional. Today, that figure is 25 percent, and Schneider’s goal is to make regional freight account for half of its truckload business.

Strong demand is building a denser freight base in all of Schneider’s regions, propelling expansion at a faster pace, Vice President Mike Hinz said. The company plans to hire 2,100 regional drivers this year, bringing its total regional fleet to 2,500 units.

“The customer demand for our regional service has exceeded our expectations and created enough freight density to get drivers home weekly,” he said.

Con-way Truckload now has about 350 trucks in regional service, and that number is rising every month, Schmidt said. “There’s growing opportunity to redeploy assets” from long-haul to regional service. The company has about 2,700 tractors altogether.

“I love the regional business,” Schmidt said. “We’ll be just as comfortable in that space as in the long-haul business.” And while more long-haul truckload traffic is shifting to intermodal rail, it will never vanish, he said, “because there will never be enough rail coverage to fill that void.”

Journal of Commerce, 3/15/2010

 
'Inverse perfect storm' brewing in trucking: Analysts
Friday, 12 March 2010 00:00

COLUMBUS, Ind.—Improving trends in the economy and the onset of capacity tightening in the truckload sector point to stronger demand for commercial vehicles in late in 2010 and into 2011, according to ACT Research Co. (ACT).

In the latest release of the North American Commercial Vehicle Outlook, ACT continues to project heavyduty (Class 8) vehicle production will grow 19 percent year-over-year in the second half of 2010 before ramping up significantly to 77 percent growth in 2011.

Medium-duty vehicle (Classes 5-7) production, which is largely tied to the health of housing and construction, is expected to see a more steady and gradual increase in production, growing 20 percent in 2010 and 30 percent in 2011.

"Our trucking surveys are showing improving trends in volumes and pricing and our used truck analysis has shown modestly firming values for several months," said John Burton, vice president-transportation sector. "All indications point to capacity tightening in the truckload sector by mid-year, which will drive improved profitability and lead to replacing an aging fleet."

Carriers, meanwhile, corroborate many of those views.

A separate survey by Transport Capital Partners found that carriers and industry vendors think capacity is tightening in February.

According to TCP, carriers expect this month to continue to improve as inventory is moved. While carriers are uncertain about April, they expect May to be very strong.

"The three factors of volumes, rates and driver shortages are setting the industry up for winning an 'inverse perfect storm,' where carriers will finally be able to post much-needed earnings," TCP said.

TCP's recent Business Expectations Survey indicated that 10 percent of carriers reported that they have been able to selectively raise some rates; and some of those carriers are hiring drivers to fill parked trucks.

However, good drivers are hard to find because of extended unemployment benefits at high rates.

The one roadblock to fleet expansion, however, is securing financing as finding lenders to capitalizing trucking right now is also difficult.

TCP found that carriers are still wary about adding equipment, as fleets will be facing increased credit standards and tougher lending terms from banks. Fleets are also concerned about who will supply financing for owner-operators to replace older trucks.

TodaysTrucking.com, 3/12/2010

 
LaHood, trade and commerce reps discuss new Mexico truck program
Friday, 12 March 2010 00:00

WASHINGTON—U.S. Trade Representative Ron Kirk, Secretary of Transportation Ray LaHood and Secretary of Commerce Secretary Gary Locke met Thursday to discuss how the U.S. will address its ongoing dispute with Mexico over access to the U.S. market for Mexican trucks.

A spokesman for Kirk’s office said today she did not know whether the officials would issue any report on the meeting.

At a panel discussion at the Export-Import Bank's annual conference Thursday, Kirk stressed the importance of finding a resolution to the trucking dispute, arguing that the continued failure to do so is "costing jobs."

He also said that while the U.S. expects other trading partners to "play by the rules," the U.S. is expected to play by the rules as well.

"We need to get it done," Kirk said, in reference to the dispute. "We're very hopeful that we can get that resolved."

Congress killed a cross border pilot project with Mexico last year, citing primarily safety concerns.

Mexico immediately imposed tariffs on U.S. exports at the time estimated to cost U.S. interests about $2.4 billion.

Various groups, including lawmakers, have turned up the heat in recent days to get the Obama administration to come up with a new program.

Representatives of the Alliance to Keep U.S. Jobs said this week at a news conference that more than $1.5 billion in U.S. manufactured products and $900 million in U.S. agriculture products are impacted by the tariffs and more than 12,000 agricultural and 14,000 manufacturing jobs are at risk.

On March 1, a group of 56 lawmakers, almost evenly divided between Democrats and Republicans, sent a letter to Kirk and LaHood urging immediate action to come up with a new program, noting the administration’s “lack of action and transparency” to end the dispute.

TheTrucker.com, 3/12/2010

 
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