Joining the truckload and rail carriers we follow before them, the US less-than-truckload sector was hit with a very soft fright environment in Q2, 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 modestly for some carriers.
Supply Chain Digest Says... |
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| And Old Dominion seems finally to have run into the law of large numbers for the second quarter in a row, after several years of regular gains near or above double digits in revenue and profits. |
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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 US Truckload Carriers Have Another Soft Quarter in Q2 on Weak Demand).
Then last week we reviewed results from the four main US publicly traded rail carriers. (See Rail Carriers See Soft Q2 Again in Terms of Volumes, but Stay Very Profitable.)
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 second quarter ending Nov. 30, for example - so that comparisons to standard quarters in terms of results for the other carriers doens't work.
We have started to add Roadrunner Transportation to our group, as it has substantial LTL business, but unlike the other four carriers it is a broker, not a asset-based carrier. In addition, Roadrunner actually has a truckload business with about twice its LTL revenues, but we decided to add it to our mix nevertheless.
Total LTL group revenues in the quarter were down 3.5% across the five LTL carriers we follow, though that includes a drop in fuel surcharge revenues, as diesel prices were again below levels in Q2 of 2015.
But it was a soft quarter for sure, with average total tonnage in the quarter down 4.6%, led by a big drop of LTL tonnage at Roadrunner of 12.7%.
Saia in its Q2 earnings release called Q2 a "challenging freight environment," echoing the comments of about all the other carriers.
That soft environment naturally led to a decline in profits, which fell by 20% across all the carriers we follow. In fact, the only carrier that improved its net income was YRC Worldwide, up 4.2%.
Net income as a percent of revenue fell from 5.1% in 2015 to just 3.8%% in this most recent quarter.
Relatedly, average operating ratios (OR), or operating expense divided by operating revenue, a key metric in the transport sector, rose in the quarter to an average level of 93.1%, versus a better 91.1% last year. That compares to an overage OR of 88.7% for the six truckload carriers we follow in Q2.
And Old Dominion seems finally to have run into the law of large numbers for the second quarter in a row, after several years of regular gains near or above double digits in revenue and profits. Old Dominon's revenue actually fell just a bit in the quarter - the first time that has happened since 2009 - and profts were down 4.9%, though as usual its results were still far superior to the other LTL carriers, with net income of 10.3% of revenues, compared to next best of just 4.3% by Saia.
But despite the general weakness, rates for the LTL carriers mostly stayed firm.
For example, revenue per hundredweight, a proxy for rates, increased by 2.9% YRC Freight in the quarter (but was up less in its Regional segment), while the same measure was up a decent 2.7% at Old Dominion. ABF Freight commented that "Though the current LTL pricing environment is competitive, it remains rational."
Below is the full table of US LTL carrier results in Q2.
US LTL Carrier Q2 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
During the quarter, YRC Freight added its new Accelerated service which allows customers' non-guaranteed shipments to reach their destinations one to two days faster than standard transit times.
Second quarter 2016 tonnage per day decreased 6.0% at YRC Freight and 2.4% at the Regional segment compared to the second quarter 2015.
At YRC Freight, revenue per hundredweight increased by 2.9% when compared to the same period in 2015. In the Regional segment, revenue per hundredweight increased by 1.3%.
Still in some level of financial jeopardy and heavy debt, YRC said that for the six months ended June 30, 2016, cash provided by operating activities was $47.5 million, an increase of $16.4 million compared to $31.1 million for the six months ended June 30, 2015.
Meanwhile, YRC's debt to EDITDA ratin continues to steadily improve.
ArcBest/ABF Freight
Company said "The inconsistent economic operating environment combined with a surplus of transportation capacity continues to impact available business levels and operating margins at ABF Freight and at each of ArcBest's asset-light logistics companies."
Excluding fuel surcharge, revenue per hundredweight at ABF Freight's traditional LTL freight rose in the low-single digits.
Added that "Though the current LTL pricing environment is competitive, it remains rational."
Noted that "continued strength in shipments relative to tonnage levels resulted in dock and street labor costs disproportionate to the revenue associated with reduced tonnage levels."
ArcBests s brokerage business was up 34% year over year to just under $68 million in revenues in the quarter, while its expedited freight business was down about 14%.
Old Dominion
A sluggish freight environment and low fuel surcharges led Old Dominion to its first quarterly year-over-year decline in revenue since the fourth quarter of 2009, during the recession.
Company said that excluding fuel surcharges, LTL revenue per hundredweight increased 2.7% during the second quarter, "as the pricing environment remained relatively stable."
The CEO said that "Old Dominion's financial results for the second quarter were solid, considering the challenging operating environment. We continue to be well-positioned to weather the current economic environment and have the capacity for future growth."
Saia
Company called Q2 a "challenging freight environment."
Noted that because it achieved 98% on-time service in the quarter and a cargo claims ratio of 0.77%, "The perceived value in those measures, by our customers, enabled us to improve our yield in the quarter" even in the weak freight environment.
Yield on freight moves was up 2%.
Roadrunner Transportation
Company said that in Q2 it saw "continuing declines in freight rates and volumes across most end markets."
It added that it reduced "the number of long haul employee drivers and trucks in favor of more cost effective purchase power and independent contractors."
Truckload revenues at Roadrunner decreased slightly to $282.2 million for the second quarter of 2016 from $285.9 million for the second quarter of 2015, while LTL revenue in Q2 decreased 11.9% to $122.3 million.
Any reaction to the Q2 results and trends from the LTL carriers? Let us know your thoughts at the Feedback section below.
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