Many LTL Carriers Boost Profits in 3rd Quarter

Many less-than-truckload carriers wrestled better pricing out of shippers, made more money and generated more revenue in the third quarter, even though gains in shipments and tonnage were uneven, according to earnings statements and interviews.

LTL’s recovery from the recession has been slower than the truckload sector, but in the three months ended Sept. 30, many LTL carriers were able to post better profits based on pricing gains that outpaced volume growth.

While the LTL sector has not regained pre-recession levels of profitability and faces high costs for fuel and new equipment — as does the rest of trucking — there was still a notable change.

“We’re doing pretty fair now. Our profitability has improved,” said Charles Hammel III, president of privately held Pitt Ohio LLC, Pittsburgh, adding that the “industry is more stable now than in the last couple of years.”

Publicly traded carriers cut operating ratios — expenses as a percentage of revenue — under a variety of circumstances.

The Con-way Freight division of Con-way Inc. saw quarterly shipments dip by 4% and tonnage decline by 5.5%, compared with the third quarter of 2010, but revenue per hundredweight, LTL yield, rose by 12% to $17.21.

As a result, operating income at Con-way’s LTL division more than tripled, and the corporation turned a net loss last year into a profit.

ABF Freight System, the main operating company of Arkansas Best Corp., had a 2% gain in tonnage, while the number of shipments was flat and revenue per hundredweight rose 15.9% to $27.10. The corporation’s net income was $12.3 million for the quarter, compared with a $749,000 loss a year ago.

FedEx Freight, North America’s largest LTL carrier, has been a vocal proponent of yield management — improving rates for poorly paying accounts or eliminating them. For its fiscal quarter ended Aug. 31, the number of shipments declined by 7.4%, but operating ratio improved by 4.5 points and yield rose 11.4% (9-26, p. 5).

In contrast, Old Dominion Freight Line did pull in more volume, increasing tonnage by 9.6%, compared with last year, and raising the number of shipments by 12.2%. Yield increased by 13.7% to $14.82 per hundredweight, enabling the carrier to post a sector-best OR of 86.2, down from 89 a year ago — the only public LTL to crack the 90-OR barrier in the third quarter.

Stock analyst Jason Seidl of Dahlman, Rose & Co. said of the LTL sector: “Third-quarter pricing strength was also evident in the results of other carriers, which reported increases in the high single digits to north of 15%, including fuel surcharges . . . While LTL pricing should be solid in the fourth quarter and beyond, we believe any significant hike from this point will require improvement in demand.”

Analyst Jon Langenfeld of Robert W. Baird & Co. said the sector is characterized by “strong traction among industry rate increases announced and implemented during the third quarter. Industry margins improved . . . but remain below adequate levels.”

However, it has not all been smooth sailing, said Mike Moran Jr., vice president of Moran Transportation & Distribution Inc., Elk Grove Village, Ill.

“It’s been kind of a rocky go,” he said. “Every month is different. Volumes are holding their own, although there has been no fourth-quarter push, but we are maintaining profitability and holding on to rates.”

Moran said there was a surge in LTL shipping starting in March, which provided “much needed volumes and helped dramatically.” However, the growth trend did not continue but turned into a plateau instead, he said.

Moran is immediate past chairman of the Distribution & LTL Carriers Association, a group of mainly smaller LTLs. He also said rate increases for smaller shippers have stuck well, but not as well for larger contract shippers.

Not every public LTL carrier reported gains. Vitran Express said its operating ratio deteriorated by 3.6 points to 101.6, as it was beset by sharp increases in health-care and workers’ compensation costs. However, shipments, tonnage and yield all rose for the quarter. Parent Vitran Corp., Toronto, posted a loss for the quarter, having been profitable at the same time last year.

YRC Worldwide, Overland Park, Kan., was profitable in its regional work, but not on the longhaul level, and lost money overall (see story, p. 3).

Saia Inc., Johns Creek, Ga., and Roadrunner Transportation Systems, Cudahy, Wis., also reported increases in quarterly net income.

Pitt Ohio’s Hammel said his company has benefited from returning customers who left during the recession in search of the lowest possible rates. General economic improvement means shippers now are considering service quality in addition to price, he said.

Hammel said carriers cannot simply lunge for any sort of business that presents itself.

“Growth in tonnage and shipments also means a growth in expense,” he said. “You always want revenue growing faster than tonnage. LTL pricing is getting back to where it should be, but it’s not there yet.”