Less-Than-Truckload Pricing Fades in 4Q

By Staff Reporters Jonathan S. Reiskin, and Dan Leone

This story appears in the Feb. 16 print edition of Transport Topics.

Less-than-truckload pricing dwindled during the fourth quarter, contributing to an increase in operating ratios toward the break-even point, according to a survey of results from publicly traded companies.

All of the carriers said revenue per hundredweight, including fuel surcharges, declined relative to the fourth quarter of 2007. All but two companies said operating ratio deteriorated.

“We are now over 27 months into a freight recession that is the worst I have seen during my 37 years in this industry,” said Robert Davidson, chief executive officer of Arkansas Best Corp. and its flagship carrier ABF Freight System.

“Arkansas Best’s fourth-quarter results reflect the profitability effects of ABF’s decelerating tonnage levels and competitive pricing pressures in the midst of a freight environment of unprecedented weakness,” Davidson said in the company’s earnings statement.

ABF’s revenue per hundredweight, a measure of LTL pricing, fell 3.6% to $25.09 from $26.02 at the end of 2007. Over the same time, operating ratio, or expenses as a percentage of revenue, worsened to 104 from 95.5.

Operating ratios above 100 were common during the quarter, even for the largest less-than-truckload carriers. YRC Worldwide’s longhaul operations hit 117.9, up from 103.5 a year earlier.

Con-way Freight clocked in at 101.4, up from 92.6; and Vitran Express posted an OR of 103.7, up from 98.5 last year.

Saia Motor Freight lowered its OR to 97.7 from 98.4. YRC’s regional division ran at 105.8, but a year ago, it did not post a ratio because of a one-time, noncash charge of $705.3 million.

In recent quarters, the more common pattern was for total revenue per hundredweight to increase because of fuel surcharge increases but basic rates to dip slightly. In the second-quarter Transport Topics survey of pricing and operating ratio, yield increased by 7% or 8% from the middle of 2007, while operating ratio puffed up only slightly, usually by about 1.5 percentage points (9-1, p. 3).

Averitt Express has been wrestling with how to appeal to shippers in a down market, said Executive Vice President Phil Pierce. “We’ve looked at everything we can to see if we can’t take cost out of our system. That’s the mentality we’ve had for three, four, five months. Because of so much pricing pressure, it’s a buyer’s market, as everyone knows,” Pierce said.

As a result, Averitt has announced it is not imposing a general rate increase this year.

“Traditionally, the industry does this every year. But after a lot of deliberation, we tried to put something positive in the marketplace,” Pierce said of the hold-the-line decision.

Carriers and shippers have been making adjustments to see who should be doing business together, said Geoffrey Muessig, chief marketing officer for Pitt Ohio Express.

“Our business is closely tied to manufacturing activity, which has plummeted in the last three months. We’re doing less business. . . . That said, we’ve been able to adjust our operations accordingly, and we’re going to be able to weather this storm,” said Muessig, adding that Pitt Ohio came out of 2008 with a 93 annual operating ratio.

“We’ve been able to hold the line on pricing and, in some instances, we’ve been willing to separate from business when the market price no longer covers our cost,” Muessig said.

UPS Inc. said in its earnings call that it has let poorly paying LTL business depart and has declined

to lure it back with cut-rate pricing (2-9, p. 5). Managers also said UPS Freight was somewhat profitable for 2008, but they were silent on the fourth-quarter LTL profit figures.

Stock analyst David Ross, who follows the LTL sector for Stifel, Nicolaus & Co., said that for now, “There’s still too much capacity in the LTL environment.

“We still see capacity coming out in the next couple of quarters, whether it’s solely through the YRC integration [of its Yellow and Roadway units] or a combination of YRC and [the failure] of smaller carriers or YRC exiting altogether. LTL, because it’s a density game, it’s not as easy to reduce as truckload,” Ross said.

He also noted the effects of fuel surcharges, which brought in a lot of additional revenue to keep carriers afloat as diesel prices soared. But they also largely kept basic freight rates static.

“In this downturn, you had fuel surcharges as high as 38%, which is a large amount for customers to get added onto their bills,” Ross said. “As surcharges come down, carriers haven’t been able to get that back . . . pricing got better for the shipper.”