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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All

From SCDigest's On-Target E-Magazine

- Aug. 22, 2012


Logistics News: Beleaguered LTL Carriers Finally Getting Healthy, as Q2 Rates Continue Recent Increases


All Five Carriers We Track Have Operating Ratios Under 100% for First Time in Many Quarters; Old Dominion Continues to Expand, Take Share

SCDigest Editorial Staff


It's time once again for our quarterly review of the earnings reports and conference calls of major carriers.

Over the last couple of weeks, we reported on the strong results from public truckload carriers, which you can find here: Truckload Carriers Once Again Post Generally Solid Q2 Results, as Asset Discipline Continues to Pay Off, and the rail carriers, which can be found here: Rail Carriers Enjoy Solid Q2 Results Despite Collapse of Coal Shipments.

This week, we end our Q2 reviews with the less-than-truckload carriers.


With the exception of Old Dominion, the LTL sector has struggled mightily in recent years (longer than that, many would argue), with YRC Worldwide having a near death experience in 2009 to 2011, and most other LTL providers losing money over the same period. The LTL sector continues to be highly fragmented, giving an edge to shippers in terms of supply and demand balance, which drives down rates.


However, the carriers have been working on networking efficiences and other improvements to reduce costs and improve yields, and the last few quarters have seen the carriers get back some level of pricing power, with contactual rate increases in the 4-5% range each period year over year.


As a result, as a group in Q2 among the five publicly traded LTL carriers we track, all but YRC Worldwide made a net profit, and YRC itself made $15.5 million in operating income. That's the first time that has happened at YRC (with the exception of one quarter that was impacted by an unusual financial transaction) since Q3 of 2008.


All five carriers also had operating ratios (operating expense divided by operating revnues) of under 100% - the first time that has happened in quite a long time.


Still, overall profitability is still weak across the sector, and far below the truckload and rail sectors generally.


LTL Carrier Results Q2 2012



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Of course, Old Dominion continues to blow away the field with its performance, sporting an 84.7% operating ratio that compares with the results of the better run truckload carriers, and continued gains in market share, with tonnage up another 9% in Q2, versus flat or negative changes in tonnage hauled by the other carriers.


Saia saw both revenue and profits soar in Q2, though tonnage was up just 1.1%.


Arkansas Best/ABF managed to return profitability after a number of quarters of losses, but keeps losing a lot of tonnage in recent quarters, which was acknowledged but not really explained in its Q2 earning release.


The results for the full half of 2012 are not as strong as Q2, with the usual exception of Old Dominion, meaning things got much better in Q2 for the group versus Q1, which itself marked improved results over previous periods for most of the group.


LTL Carrier Results 1H 2012



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(Transportation Management Article Continued Below)



Below, we call out some of the commentary from the Q2 earnings releases for each carrier.


YRC Worldwide:


The company's regional LTL group (USF Holland, New Penn, etc.) continues to perform better than its national segment. The regional group saw operating revenues up 7.0% and tonnage per day up 4.4%, while the national segment saw revenues drop 0.7% and tonnage per day down 3.3%.


The company is deploying 10,000 new handheld devices that it says will offer significant productivity improvements.


The company is continuing to consume cash, burning $16.6 million so far this year, but that is down substantially from the $61.3 million consumed in 1H 2011.


The company said a lawsuit by ABF against YRC and the Teamsters union relative to the contract concessions made by the union to keep YRC afloat, giving it a labor rate advantage over other unionized carriers, has been dismissed for a second time in federal court.


Arkansas Best/ABF:

Reiterated that during Q2, it has acquired Panther, a non-asset based expedited carrier/broker, as the company said it is looking to expand its non-asset based business generally.


Like others, ABF continues to focus on price.


"ABF implemented a 6.9% increase in its general rates and charges on June 25, 2012 that was in effect during the last week of the second quarter," it said, "Second quarter price increases on ABF accounts under contract and deferred pricing agreements remained at favorable levels. In the second quarter of 2011, ABF began an aggressive initiative to address inadequate pricing and improve the profitability of many accounts across its network. This effort continues in 2012. As a result, the incremental profitability of ABF’s account base has improved."


Old Dominion


Operating ratio continues to improve to levels simply well beyond anyone else in the sector, dropping to 84.7% in Q2 from 86.5% in 2011.


Company also mentioned a "favorable pricing" environment, and said it improved its cargo claims ratio for the second quarter to a company record 0.38%, while maintaining our 99% on-time service.


OD continues to expand its coverage areas, opening a new service center in Benson, MN, in Q2, and new service centers in Orange, CA; Pensacola, FL; and Duluth, MN, already in Q3, giving it a total of 218 service centers.




Conway is the most diversified of the group, also operating a large truckload business and 3PL Menlo Logistics.


Among the highlights of the very brief management comments on its LTL business, Conways said, "The current-period results reflected continued price improvement, operating efficiency and cost controls."




Saw a significant improvements in its operating ratio in the quarter, falling to 92.6% in Q2 versus 96.9% in 2011.


Revenue per hundredweigth was up 7.1% in the quarter, rising to $13.71 from $12.80 in 2011.


The company said that "Safety and cargo claim reduction programs also produced positive results and contributed to favorable quarterly comparisons. Our industrial engineering initiatives and operational efficiencies have reduced our reliance on purchased transportation, enhanced fuel efficiency and reduced our self insurance costs."



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