‘Soft’ Market Trims 2Q LTL Profits

By Jonathan S. Reiskin, Associate News Editor

This story appears in the August 13 print edition of Transport Topics

Less-than-truckload carriers struggled during the second quarter to strike a balance between soft pricing and declining tonnage, with most large publicly traded carriers reporting lower profits than a year earlier.

Companies frequently used the words “soft” and “softness” in describing economic activity and shipping. Net income levels generally declined as operating ratios rose, but none of the carriers reported a loss. There was also a consensus that a strong second-half peak shipping season is far from certain.

“During this year’s second quarter, ABF effectively managed through a challenging environment with a softer, more competitive marketplace,” said Robert Davidson, chief executive officer of Arkansas Best Corp., parent of ABF Freight System, the nation’s fifth-largest LTL.

“The soft market for less-than-truckload freight remains highly competitive and price-sensitive, which has put pressure on yields,” said Con-way Inc. CEO Douglas Stotlar. The company operates as Con-way Freight, the third-largest LTL.

The two corporations arrived at similar results by traveling different paths.

Arkansas Best posted a quarterly profit of $19.6 million, but that was 39.2% lower than last year’s figure. Quarterly revenue dipped by 4.4% and operating ratio — expenses as a percentage of revenue — puffed up to 93.1 from 90.1.

Davidson said he was pleased ABF could maintain pricing discipline and posted a 1.2% increase in revenue per hundredweight of freight shipped. However, tonnage fell by 6.9% from a year ago.

Con-way Freight beefed up its daily tonnage by 4.4%, but revenue per hundredweight dipped by 3.4% before fuel surcharges and by 3.5% with them.

Con-way Inc.’s combined trucking operations — mainly LTL, but also some truckload activity — generated quarterly operating profits of $70.3 million, or 31.2% less than a year ago. Quarterly revenue also declined by 0.6% and operating ratio deteriorated by 3.8 points.
At privately held Jevic Transportation, Chief Financial Officer Gerry Paulson recounted a similar story.

“We’ve been seeing a continuation of the first quarter, when things just slowed down, and now we’re in a holding pattern,” Paulson said in an interview.

“Customers are cautiously optimistic that business has stabilized, but we’re not planning on a recovery until early 2008,” he said.

Paulson said he agreed with reports from the public companies about lower volumes and tougher pricing, but added that “it’s not a wholesale change. Pricing appears much more aggressive on the truckload side, where carriers bought more trucks last year and there’s more of a capacity issue,” he said.

Jevic specializes in heavyweight LTL shipments that usually bypass break-bulk terminals. The Delanco, N.J., carrier also has some truckload operations and is a frequent vendor to the chemical industry.

YRC Worldwide, the nation’s largest LTL, said its net income tumbled by 40% to $55.4 million from $92.3 million the year before (8-6, p. 5). Tonnage fell at both the longhaul and regional segments, as did regional revenue per hundredweight. Longhaul pricing did improve by 1.4%, though.

Chairman and CEO William Zollars characterized the market by saying, “The transportation industry continues to experience soft volumes year-over-year, and most economists have pushed out economic strengthening until late in the year.”

With the economy exhibiting such unpredictability, Zollars said YRC would not provide guidance on its earnings per share for 2007.

Saia Inc. was able to report a gain in net income and Vitran Corp. had a more moderate decline, but mainly because they restructured themselves through acquisitions.

A year ago, Saia, then a part of SCS Transportation, lost $35.9 million during the second quarter, when it was spinning off Jevic to private equity fund Sun Capital Partners. Since then, Saia has stood alone, concentrated on its regional transportation and acquired The Connection Company and Madison Freight System.

The reconfigured Saia earned net income of $7.4 million on quarterly revenue of $252.8 million.

Saia CEO Rick O’Dell said, “Saia achieved solid top-line revenue growth, but did not achieve targeted margins.

“We believe this was primarily due to the soft shipping environment with costs further impacted by accident severity,” said O’Dell.

Vitran CEO Rick Gaetz described North American LTL shipping as soft, although his Toronto-based company was able to increase revenue by almost 40% on a year-over-year basis because of its October acquisition of PJAX Freight System.

However, net income fell by 4.2% to $5.5 million, and LTL operating ratio gained 1.6 points to 94.

Old Dominion Freight Line proved to be the major exception to the trend. Not only did the nation’s seventh-largest LTL add 8.7% to its quarterly revenue, bringing in $358.7 million, but the company’s net income grew by 4.3% to $22.5 million.

Chairman and CEO Earl Congdon said his family’s company faced “an industry environment that remained as challenging as we anticipated.”

Operating ratio grew by less than half a point to 88.7 from 88.3 last year, even though the company has had to assimilate Priority Freight Lines, which it bought in April