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Supply Chain News: LTL Carriers Again Manage Pricing Strength in Q3 Despite Weak Freight Volumes

 

Net Income for Our LTL Group was Down 4.8% in the Quarter, but Revenue per Hundredweight Solidly Up for Most Carriers

Nov. 16, 2016
SCDigest Editorial Staff

Joining the truckload and rail carriers we follow before them, the US less-than-truckload (LTL) sector was hit with a very soft fright environment in Q3, causing volumes, revenue and profits to lag, although rates did not react downward as sharply as might usually have been the case, and in fact rose solidly for some carriers.

Supply Chain Digest Says...

ARCBest noted that "As we have seen throughout the year, pricing in the less-than-truckload sector remained rational despite a soft economic environment."

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We're back as usual every quarter with our review of the results and trends across freight modes, starting two weeks ago week with US truckload carriers (see Q3 Truckload Profits Down, but Carriers Generally Hang Tough).

Then last week we reviewed results from the four main US publicly traded rail carriers. (See As Volumes Continue to Decline, Rail Carriers See Solid Profits in Q3.)

 

Our pool of publicly traded LTL carriers continues to shrink, after XPO Logistics acquired Conway Freight in mid-2015. XPO does not publish Conway results in enough detail for us to use.

And as usual, we'll note our analysis does not include two of the largest LTL providers - UPS and FedEx - because neither UPS nor FedEx breaks out their numbers in a way that allows the LTL portion to be isolated out from other freight business such as truckload carriage (FedEx) and supply chain services (UPS).

In addition, FedEx runs an unusual fiscal calendar - with its first quarter ending Aug. 31, for example - so that comparisons to standard quarters in terms of results for the other carriers doesn't work well.

 

Earlier this year, we added Roadrunner Transportation to our group, as it has substantial LTL business, although Roadrunner has a truckload business with about twice its LTL revenues, but we decided to add it to our mix nevertheless to increase the LTL analysis pool.

Total LTL group revenues in the quarter were down 4.8% across the five LTL carriers we follow, though about 2 percentage points of that drop came from yet another fall in fuel surcharge revenues, as diesel prices were again below levels in Q3 of 2015.

But it was a soft quarter for sure, with average total tonnage in the quarter down 4.8%, led by a big drop at Roadrunner of 13.8%. The other four carriers we follow saw freight tonnage down from 1.3% to 2.9%.

 

Old Dominion said in its Q3 earnings release that "the economic environment continued to be weak during the quarter," while ArcBest/ABF Freigth commented that "continued softness in the U.S. industrial economy impacted freight tonnage levels."

 

However, Saia said that its LTL shipment volumes turned positive in September for the first time since February.

 

That soft environment naturally led to a decline in profits, which fell by 4.8% across all the carriers we follow, but that aggregate number masks big differences across individual carriers. For example, Saia and Roadrunner actually saw profits rise by strong double digit percentages, while earnings fell by close to one-third at YRC and ArcBest. Old Dominion saw a small rise in profits.

 

Net income as a percent of revenue fell just a tick to 3.9% in 2016 from 4.0% in 2015, as the LTL sector remains not very profitable, as has been the case for decades.

 

Not surprisingly then, average operating ratios (OR), or operating expense divided by operating revenue, a key metric in the transport sector, were also nearly flat in Q3, rising to an average level of 93.5% versus a slightly better 93.1% last year. That compares to an overage OR of 90.1% for the six truckload carriers we follow in Q3.

 

Old Dominion's once explosive growth slowed for the third quarter in a row, after several years of regular gains near or above double digits in revenue and profits. Old Dominon's revenue was basically flat, up just 0.4% in Q3, and profits as noted above were up just 1.4%. Aas usual, however, its results were still far superior to the other LTL carriers, with net income of 10.9% of revenues, compared to next best of just 4.4% by Saia.

 

But despite the general weakness, rates for the LTL carriers mostly stayed firm. YRC noted, for example, that "pricing discipline in the LTL sector remains steady," while Old Dominion commented that "Although the economic environment continued to be weak during the quarter, the pricing environment remained stable.

 

As evidence of that, ABF said its revenue per hundredweight, a proxy for rates, was up a strong mid-single digit percentage in the quarter, while the same measure was up 3.5% at Saia and 2.5% at Old Dominion.

 

Below is the full table of US LTL carrier results in Q3.

 

US LTL Carrier Q3 2016 Results

 

 

Source: SCDigest from Carrier Earnings Releases

 

(See More Below)

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As usual, we provide a few highlights from the earnings releases of each carrier, which were somewhere between the truckload carriers (a lot of commentary) and the rail carriers (very little commentary) in terms of detail.

 

YRC Worldwide

Company had consolidated operating income of $38.8 million in the quarter.

YRC still has a lot of debt. It said total debt-to-Adjusted EBITDA ratio for third quarter 2016 was 3.45 times, up from 3.15 times for third quarter 2015. But, it said "This complies with the 3.75 maximum total leverage ratio covenant as of September 30, 2016 under the company's term loan credit agreement."

We'd say YRC is not out of the financial woods yet. However, YRC said at the end of Q3 it had cash and cash equivalents of $290.1 million, an increase of $45.3 million compared to $244.8 million as of September 30, 2015.

Company said revenue per hundredweight - a proxy for rate changes - increased by 0.3% when compared to the same period in 2015 at its Freight unit, and by 1.5% in its Regional segment.

YRC said "We continue to believe pricing discipline in the LTL sector remains steady despite the near-term headwinds" coming from weak freight volumes.

Company said it made "significant technology investments that include driver handheld units and Optym load plan and Quintiq route optimization solutions."

ArcBest/ABF Freight

Company noted that "The continued softness in the U.S. industrial economy impacted freight tonnage levels and profit margins at ABF Freight," but that its "asset-light logistics companies were highlighted by improved revenue and operating profit at Panther," its expedited transportation arm.

ARCBest noted that "As we have seen throughout the year, pricing in the less-than-truckload sector remained rational despite a soft economic environment."

Company said that revenue per hundredweight, excluding fuel surcharge, was up a strong mid-single digit percentage on ABF Freight's traditional LTL freight. It added that "In the midst of a stable LTL industry pricing environment, ABF Freight's disciplined yield management focus has generated reasonable account price increases."

Old Dominion

Company said "Although the economic environment continued to be weak during the quarter, the pricing environment remained stable."

OD said it saw a 2.5% increase in LTL revenue per hundredweight in Q3.

LTL weight per shipment increased on a year-over-year basis for the first time since the fourth quarter of 2014.

Saia

Company said "Third quarter operating results reflect our continued pricing discipline and our company-wide efforts aimed at achieving operating efficiencies across all areas of our network. In the quarter we saw year-over-year improvements in dock, city and linehaul productivity."

Added that though the economic environment continues to offer only "tepid [freight] growth," its LTL shipment trend turn positive in September for the first time since February.

Revenue per hundredweight was up a solid 3.7% in the quarter.

Roadrunner

Company was retrenching a bit in the quarter, noting that operating income for the nine months ended September 30, 2016 included $8.1 million of downsizing costs and a $4.9 million gain from the sale of a non-core businesses.

Along the same lines, while consolidated revenue was up $35 million, company said a "large portion of the revenue increase related to our ground expedite business in which we receive a management fee versus transportation or brokerage margins. Our remaining transportation businesses, when compared to the prior year, are experiencing continuing declines in freight rates and volumes across most end markets."

Noted that "Trends in our LTL segment remain mostly unchanged with continued market impacts from weak freight demand in the general industrial markets."

Revenue per hundredweight in the LTL segment, excluding fuel surcharge, was up a strong 4.9% in the quarter.

At the end of the quarter, company announced the official name change of Roadrunner LTL to Roadrunner Freight.

Any reaction to the Q3 results and trends from the LTL carriers? Let us know your thoughts at the Feedback section below.

 

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