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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All
 

From SCDigest's On-Target E-Magazine

- Nov. 20, 2013 -

 

Logistics News: LTL Sector Results Continue to Improve in Q3, even as YRC Goes a Bit Wobbly Again


Profitability Continues to Grow, as Operating Ratios Fall; Are Looming Debt Payments a Big Problem for YRC Worldwide?


SCDigest Editorial Staff

 

The less-than-truckload (LTL) sector in the US has been challenged financially for decades, but in Q3 turned in another relatively (and we emphasize relatively) strong financial performance, even though the recovery story at YRC Worldwide now seems a bit wobbly.

SCDigest Says:

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The performance gap between the YRC Freight and YRC regional businesses is growing. Freight had an operating ratio of over 100 (101.2%) in the quarter, versus just 95.5% for the regional unit.
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This is the last in our three quarterly reviews and comments across US transportation modes, following similar efforts for truckload carriers (see US Truckload Carriers Muster Decent Q3 Result Despite Lukewarm Freight Environment) and for the rail carriers (see Rail Carrier Profit Machines Keep Rolling Along in Q3).

This week, we analyze results and the relatively brief comments from the five public LTL carriers we follow, based on each of their Q3 2013 earnings calls.

 

Note we do not track major LTL service providers UPS and FedEx because they do not break out their results for LTL in a way that is amenable to our analysis.

 

In Q3, net income was up sharply for four of the five LTL carriers, including a rise of 114% at Akrkansas Best/ABF Freight. Conway Freight saw its operating income (not net income, which it does not report by segment) up almost 50% year over year, while Saia saw a jump in profits of more than 39%.

 

Still, the group as a whole saw net income fall 9.6% because of the loss $44 million for the quarter by YRC Worldwide, whereas it had a positive net income of $3 million one year ago.

 

Has the recent recovery of YRC, which narrowly avoided bankruptcy a couple of yeara ago, stalled or even reversed itself?

 

The bad quarter was mostly attributable to its YRC Freight group, versus its regional business unit, the company said.

 

"As a consequence of YRC Freight's performance, we made leadership changes in late September," the company said in its earnings call.

 

And YRC has more troubles ahead.

 

In early November, after the earnings call, YRC issued this terse press release: "Last Tuesday, YRC Worldwide management met with officials of local unions affiliated with the International Brotherhood of Teamsters (IBT). Since then, there has been an ongoing dialogue between the Company and the IBT. Today, we understand that local unions have indicated support for the Teamsters National Freight Industry Negotiating Committee (TNFINC) to begin discussions about the company's financial future."

 

What on earth does that mean?

 

A Kansas City area newspaper wrote that "Vic Terranella, president of Kansas City's Teamsters Local 41, attended the meeting [with YRC executives]. He said the company faces two big debts payments coming due in 2014 that it cannot finance."

 

The Kansas City Star more recently noted that YRC "wants 'flexibility' rather than more wage and benefits concessions from its Teamsters employees, according to an independent Teamsters group."

 

Regardless, it appears the YRC is asking the union to extend the significant concessions relative to wages and benefits it accepted a few years ago to keep the company afloat through 2019. Those concessions are currently set to expire in 2015.

 

YRC has not detailed what it means by achieving more flexibility, but chief financial officer Jamie Pierson recently said that "We operate in a non-union industry, and we need to be able to react quicker."

 

This all means the on-going YRC saga is certainly still not over.


Read more here: http://www.kansascity.com/2013/11/19/4634769/yrc-worldwide-not-after-more-pay.html#storylink=cpy

 

Operating ratios (operating expense divided by operating revenues, a key transportation sector metric) continue to fall for the group, though in general they remain much higher than truckload and rail carriers. Still, all five LTL carriers in our group had OR's of under 100%, a rarity not long ago but a growingly common occurence in recent quarters. The unweighted group OR average fell to just 93.2% from 94.5% in 2012.

 

But as usual, Old Dominion led the way, driving its operating ratio down to just 84.1%, more than 8 percentage points below is closest rival Saia. Old Dominion's tonnage was up 9.6% in Q3, versus small tonnage gains or losses at the other five carriers.

 

The full Q3 results summary can be found in the table below.

 

LTL Carrier Q3 2013 Results

 

 

For Quarter Ending September 30, 2013 Data in $Thousands    
Carrier YRC Worldwide Arkansas Best/ABF* Old Dominion Conway** Saia Total Carriers
Total Operating Rev Including Fuel $1,252,700 $623,414 $616,458 $899,254 $293,087 $3,391,826
Change 2013 from 2012 1.3% 7.9% 12.0% 4.8% 5.4% 5.2%
LTL Tonnage (total is unweighted average) 3.2% 1.8% 9.6% -1.4% 1.5% 3.2%
Net Income -$44,400 $13,982 $60,149 $51,570 $12,908 $94,209
Change 2013 from 2012 Net Income of $3 Million in 2012 114.5% 17.8% 49.7% 39.5% -9.6%
Net Income as % of Revenue 2013 (total is unweighted average) -3.5% 2.2% 9.8% NA 4.4% 3.2%
Net Income as % of Revenue 2012 0.2% 1.1% 9.3% NA 3.3% 3.5%
LTL Operating Ratio 2013 (total is unweighted average) 98.8% 96.3% 84.1% 94.3% 92.5% 93.2%
LTL Operating Ratio 2012 98.8% 98.1% 85.3% 96.0% 94.1% 94.5%
             
* Includes numbers from its Panther Express Unit, except for OR percents
** The Conway numbers refer only to its LTL group, not the business as a whole, which includes Menlo Logistics, a truckload business, and other units
Conway Income Refers to Operating Income only for LTL Group, before other Expenses
that would be included in full net income number as is posted for the other carriers

 


(Transportation Management Article Continued Below)

 
CATEGORY SPONSOR: SOFTEON

 
 

In general, Q3 results were better for most LTL carriers than they were for the first three quarters year-to-date.

Arkansas Best/ABF, for example, had net income of almost $14 million in Q3, and just over $5 million for the full year so far, obviously meaning it was experiencing losses in previous quarters.

 

Meanwhile, the full year operating ratio is almost one and a half percentage point higher than the average in Q3.

 

LTL Carrier Year-to-Date 2013 Results

 

 

Year to Date 2013 Thru Q3 Data in $Thousands      
Carrier YRC Worldwide Arkansas Best* Old Dominion Conway** Saia Total Carriers
Total Operating Rev Including Fuel $3,657,700 $1,720,999 $1,745,178 $2,619,065 $859,439 $9,742,942
Change 2013 from 2012 -0.7% 12.6% 9.0% 13.1% 3.0% 3.9%
LTL Tonnage NA 3.6% 6.3% NA 0.1%  
Net Income -$84,000 $5,465 $158,957 $122,283 $35,563 $238,268
Change 2013 from  2012 Had $105. 1 million loss in 2012 2674.1% 22.3% -0.1% 33.5% 36.2%
Net Income as % of Revenue 2013 (total is unweighted average) -2.3% 0.3% 9.1% NA 4.1% 2.8%
Net Income as % of Revenue 2012 -2.8% 0.0% 8.1% NA 3.2% 2.8%
LTL Operating Ratio 2013 (total is unweighted average) 99.5% 100.0% 85.0% 95.4% 93.0% 94.6%
LTL Operating Ratio 2012 97.8% 100.4% 86.4% 95.2% 94.1% 94.8%
* Includes numbers from its Panther Express Unit, except for OR percents  
** The Conway numbers refer only to its LTL group, not the business as a whole, which includes Menlo Logistics, a truckload business, and other units
Conway Income Refers to Operating Income only for LTL Group, before other Expenses
that would be included in full net income number as is posted for the other carriers

 

 

As usual, we also share some of the more noteworthy management comments from the carriers from their Q3 earnings releases.

 

YRC Worldwide

 

The performance gap between the YRC Freight and YRC regional businesses is growing.

 

Freight had an operating ratio of over 100 (101.2%) in the quarter, versus just 95.5% for the regional unit. 

 

The company added that in the Freight segment, "During the quarter, the YRC Freight network was 'out of cycle,' which caused our service to decline in certain lanes. Additionally, due to summer vacations and the movement of drivers resulting from the network optimization, we were short drivers in certain terminals which obviously impacted service in those areas. The shortage also resulted in higher than expected overtime pay, increased purchased transportation in certain lanes, and lower productivity. Finally, yield was negatively impacted by increases in our weight per shipment, loss of volume from higher yielding channels and declines in weight and inspection revenue."

 

Ouch.

 

Arkansas Best

 

Noted that "Union salary, wage and benefit costs remained unacceptably high as the previous national labor agreement remained in place."

 

However, after years of negotiations, a new, lower cost, five-year contract was finally agreed to and took effect in early November, which represents a "significant step towards increasing ABF's profitability," the company says.

 

Old Dominion

Another quarter of great results "reflects our ongoing ability to win market share and increase revenue despite a period of slow economic growth," the company said. It added that "We maintained our pricing philosophy and focus on operating efficiencies, which contributed to the 120 basis-point improvement in our industry-leading operating ratio. Our success demonstrates the demand in our industry for superior service at a fair and equitable price, which is the value proposition we provide."

Old Dominion continued to expand the capabilities of its service center network during the third quarter, with new service centers in Crest Hill, Illinois and Rapid City, South Dakota.

 

Conway Freight:

 

Company said that "Our less-than-truckload company is consistently executing against its current initiatives of lane-based pricing and line-haul optimization, both of which are on track and delivering expected results."

It said its higher operating income in Q3 resulted largely from pricing and network efficiency initiatives.

Revenue per hundredweight, or yield, increased 2.5% from the previous-year third quarter. Excluding fuel surcharge, yield rose 2.4%.

 

Saia:

 

Company was able to achieve 98% on-time service for the eighth consecutive quarter and quality initiatives further reduced its cargo claim ratio.


Saia is investing in trucks and systems, Net capital expenditures for the first nine months of 2013 were $97.7 million, compares to $79.3 million in 2012. The company is now planning net capital expenditures in 2013 of approximately $115 million. This expenditure includes a significant investment in tractors and trailers to reduce the average age of Saia's fleet and continued investment in technology

 

Any reaction to the LTL Q3? Let us know your thoughts at the Feedback button (for email) or section (for web form) below.

 


   
 

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