Most LTLs Gain Volume in 1Q, Stabilize Revenue, See Growth

This story appears in the May 10 print edition of Transport Topics.

Less-than-truckload carriers as a group posted solid volume gains and stabilized their shaky revenue environment in the first months of 2010, experts said. Although most fell short of profitability in the first quarter, they predicted more growth as the year progresses.

Excluding YRC Worldwide Inc., Overland Park, Kan., seven publicly traded companies altogether hauled more LTL freight and raised more revenue in the first quarter than they did in the fourth quarter of 2009, a sharp departure from historical patterns, said Satish Jindel, founder of SJ Consulting Group Inc., Sewickley, Pa.

Typically, the first quarter has the lowest freight volumes of the year and trails fourth-quarter tonnage by about 5% because business typically is slow then, Jindel said.

Other analysts said they expect volume growth, even if at a slower pace than in April, will help to strengthen pricing, based on comments by officials at YRC, Vitran Corp. and other carriers.

Noting that some carriers such as Saia Inc., Johns Creek, Ga., had begun to raise rates, analyst Jason Seidl of Dahlman Rose & Co., New York, said that trend was “a sign that the LTL pricing market has embarked on the road to recovery.”

Breaking the usual seasonal pattern, a recovering economy pushed first-quarter 2010 LTL tonnage 1% above fourth-quarter levels for the seven carriers.

“The month of April for most of the public and private LTL carriers will show as a good month, compared to a year ago,” Jindel said. “Volumes will probably be up in the low double-digits or high single-digits.”

The tonnage increase is based on combined results from Con-way, UPS Freight, FedEx Freight, Old Dominion Freight Line, ABF Freight, Saia and Vitran. FedEx Freight totals are for its most recent fiscal quarter, which ended Feb. 28.

Revenue for those carriers rose 0.6% from the fourth quarter to $3.13 billion and climbed 13% on a year-to-year basis.

That increase reversed the typical 4% revenue decline in the first quarter from the fourth quarter, Jindel said.

YRC’s tonnage and revenue headed in the other direction, however, as it continued to lose market share.

Tonnage fell 7.9% in the first quarter from the fourth quarter and dropped 24% from the first quarter last year.

Revenue fell 4% on a quarter-to-quarter basis and 28% from a year earlier.

Morgan Keegan & Co. analyst Art Hatfield said tonnage growth is tightening capacity faster than expected. “As a result,” he said, “many carriers are running at or close to full capacity, giving them leverage they haven’t had in several years.”

Jon Langenfeld, an analyst at Robert W. Baird & Co. Inc., Milwaukee, Wis., said in a May 4 report that growing freight demand over the past six to eight weeks has absorbed some excess capacity. It also has enabled carriers to hold the line on pricing and stop cutting rates, he said.

Jindel said that other LTL fleets finally have realized that their past rate reductions didn’t succeed in pushing YRC into what he described as “more difficult times.”

Instead, he said, YRC’s competitors were hurting only themselves when they cut prices.

Jindel said he didn’t believe that carriers will remove additional capacity. Instead, he said that improving shipment volumes will sop up some of the overcapacity that has exceeded 20%.

April was a strong month because unusually severe winter weather delayed some shipments beyond the first quarter’s close, Jindel said, but he expects more moderate volume growth in May and June.

Retailers such as Lowe’s Cos. Inc., Mooresville, N.C., and Home Depot Inc., Atlanta, are helping to drive trucking demand by selling products to homeowners who are making storm-related repairs, he said.

Other signs of economic strength are the rise in industrial production for nine consecutive months and rising consumer spending for the past six months.