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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All

From SCDigest's On-Target E-Magazine

Feb. 8, 2011

Logistics News: Fourth Quarter and Full Year Quite Good for Rail Carriers, but LTL Sector Continues to Struggle


Core Rates up 5.5% in Q4, Union Pacific Says; LTL Carriers Still Struggle to Make a Buck  - is this Good or Bad for Shippers?


SCDigest Editorial Staff

By most measures, the US has certainly started to see recovery in the economy, which has led to modest increases in freight volumes as a whole, though the path to both economic and freight recovery has been rocky.

The improvement in freight volumes, in turn, has led to improvement in rates, revenues and profits for most sectors of the transportation market, as the 2010 numbers that have come in for the fourth quarter of 2010 continue to show. Last week, for example, we took a look at the Q4 and full year 2010 results from the truckload industry, which showed in general (See Q4, All of 2010 Much Better for Truckload Carriers, but Data Show Divergent Performance.)

This week, as promised, we do a similar review and summary for two other transport sectors: rail carriers and the less-than-truckload (LTL) segment.

SCDigest Says:

Rail carriers had strong profitability, up 30-69% for the quarter across the group, and similar increases for the full year.
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Before getting to that data, SCDigest notes that it was interesting to compare the financial reports across the three sectors we have reviewed. Clearly, the truckload segment offers by far the most detailed management commentary relative to results, strategies and projections. The rail and LTL carriers say little or nothing in those areas, so that unlike as we did last week for the truckload numbers, we cannot provide snippets of similar interesting comments for the rail and LTL executives, as they didn't offer any.

Rail Carriers Bounce Back Strong

The rail carriers held up best of the three sectors during the global recession and freight "depression," in large part because of continued pricing power, but were still able to rack up impressive results for Q4 and all of 2010, as shown in the chart below.

Q4 rail revenues of the publicly traded carriers, which now exclude Burlington Northern since it was acquired by Warren Buffet's Berkshire Hathaway Corp. last year, went much higher, from 13.5% on the low end from Norfolk Southern to a 21% gain at CSX. For the full year, revenues were up at least 18% for all four US major publicly traded rail carriers.

Rail volumes not surprisingly were strong up for both the quarter and the year, rising between 7 and 12% in Q4 depending on the carrier and 9 to 15% for the year. In both cases, that was substantially below the equivalent gains in revenues, indicating the rail carriers were able to substantially increases rates throughout 2010, even allowing for some impact from increase fuel surcharge revenues.

Union Pacific, for example, said in its earnings call that "core pricing" for Q4 was up 5.5%.

That in turn led to the carriers to strong profitability, up 30-69% for the quarter across the group, and similar increases for the full year.


Source: SCDigest Analysis


Equally impressive is the rail carriers' net income as a percent of total revenue, which in general was in the mid-teens for both the quarter and the year.


(Transportation Management Article Continued Below)





LTL Sector Continues to Struggle

By far the weakest financial performance among the three sectors was for the LTL industry, which continues to be plagued by over capacity and brutal price competition.

As shown in the graphics below, two of the four leading publicly traded LTL carriers had solid financial performance in Q4m while two others had a tougher time. ABF and Old Dominion both saw Q4 revenue gains in the high teens, while YRC Worldwide was up a more modest 3.9% and Con-Way in total 8.6%. Conway has substantial operations in other segments, however. In Q4, LTL revenue was up a more modest 5.7%. Con-Way's Menlo Logistics unit represents about 30% of total revenues.


Source: SCDigest Analysis


ABF and Old Dominion also say strong tonnage gains for the quarter, while YRC and Con-Way showed tonnage losses. YRC, it should be noted, was down in its national segment, but was up for its regional LTL operations.

But only Old Dominion was able to make much profit in the quarter, with the others all around break even. It should also be noted that YRC's move to profitability in Q4 was aided by a tax gain, while its comparable 2009 number was driven by another even larger one-time gain. YRC's results from operations showed a consolidated operating loss of $27 million for the fourth quarter of 2010, but which was an improvement improved from the $91 million operating loss reported for the fourth quarter of 2009,

Old Dominion CEO David Congdon said that " a number of LTL carriers announced general rate increases in the fourth quarter of 2010, which has improved the overall pricing environment for our services. On November 15th, we implemented a general rate increase of 4.9%, which contributed to a 5.9% increase in revenue per hundredweight for the fourth quarter as compared to the prior-year period. Excluding fuel surcharges, revenue per hundredweight for the fourth quarter increased 3.4% over the comparable quarterly period.

However, one interesting note comes from securities analyst John Larkin of Stifel Nicolaus, who says that the "historical Con-way Freight price premium may be gone. While Con-way believes its service can still command a premium, it will likely be less than what the company enjoyed in the past, as competitors have improved service levels, according to the company."

The full year LTL segment results were similar, with only Old Dominion able to make much of a profit despite pretty strong gains in volume and revenue across the sector.

Any reaction the financial results of the rail and LTL sectors? Are you seeing strong rate increases in either or both? Can the LTL sector ever really make any money? Is it good for shippers or not that they can't? Let us know your thoughts at the Feedback button below.


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