While all segments of the transportation industry are being hit hard by the current recession, the LTL sector is feeling the full force of the economic downturn. To pick up, consolidate, line haul, deconsolidate and deliver less than truckload shipments throughout a geographic area requires an asset heavy business model. LTL carriers require terminal networks to cross-dock, load and unload shipments to build cost effective loads. They require local pickup and delivery units and line haul vehicles to go from city to city. In this blog we will look at some of the developments currently unfolding in this industry.
Freight Volumes Declining Faster that Truck Capacity
As the Obama administration actively moves forward with an economic stimulus package to revive the ailing U.S. economy, the freight transportation market is still feeling the pain. The Institute for Supply Management reported its twelfth consecutive month of manufacturing contraction in the month of January. Based on the most recent truck tonnage index release from the American Trucking Associations (ATA), its advanced seasonally-adjusted For Hire Truck Tonnage Index sank 11.1 percent in December, representing the largest month-to-month reduction since April 1994, when the unionized less-than-truckload industry was in a labor strike. The ATA added that December’s tally marks the third largest single monthly drop since the ATA began collecting tonnage data in 1973.
According to John Larkin, Managing Director, Stifel Nicolaus, demand for LTL services is falling faster than the supply. The pattern of deteriorating LTL freight volumes has been ongoing for the past 3 quarters. LTL carriers have not been able to adjust capacity downwards to keep pace with the falling demand.
Same Number of Pickups, Smaller Size Shipments
From discussions with various LTL truckers, the phenomenon of lower weight LTL shipments appears to be happening across North America. As demand and confidence wane, shipment sizes are diminishing. This poses a challenge to LTL carriers since they cannot reduce driver wages or fuel consumption proportionately to the drop in shipment sizes or number of shipments.
More Direct to Destination Loadings
As LTL carriers seek to reduce costs and speed up transit times, they have been loading more trailers direct to destination rather than through their breakbulk networks. This process has been ongoing for several years and will likely receive a boost from the weak economy.
Capacity Consolidation
YRC is in the midst of consolidating its Yellow and Roadway LTL divisions. They are planning on removing up to 200 terminals by the end of the first quarter. YRC’s freight is being actively solicited by its competitors as they offer shippers a “safe haven” from a potential bankruptcy or chapter 11 filing.
Other trucking companies have announced terminal reductions of a smaller magnitude. These reductions along with the Jevic and Alvan failures in 2008 have removed some additional LTL capacity. The estimate is that there has been an approximately 13 percent reduction in capacity due to terminal closures and carrier failures.
ABF, long one of the best performing long haul carriers has hired a consultant to help them seek out potential acquisition candidates. For those companies with strong balance sheets, this is a time to add density at an attractive price.
Pricing Competitiveness
To generate volumes for their freight networks, carriers are actively competing on price. The LTL spot market is very price competitive. As another sign of the times, Averitt Express has just announced that they will not take a GRI (general rate increase) in 2009. Coming off this announcement, Old Dominion, that competes in many of the same markets as Averitt, has indicated that they are seeking a 5.3% rate increase. It will be interesting to see if they can sustain this increase in such a price competitive market.
More Time Definite Freight
USF Holland, a subsidiary of YRC Worldwide, on Jan. 21 launched a four-tiered plan for service.
With Guaranteed Window Delivery, customers can request time-specific service:
— Single-Hour – For deliveries within a one-hour time window on a specific day
— Multi-Hour – For deliveries on a specific day but within a longer period
— Single-Day – For deliveries on a specific day
— Multi-Day – For deliveries that must be made within a multiple-day window
Shipments using the new services arrive within the specified time period, neither too early nor too late, and receive priority handling and visibility. All four levels are backed with the Holland standard money-back guarantee.
FedEx Freight is increasing the pressure to perform in the LTL market by adding a higher level of service designed to boost market share. The new service, FedEx Freight A.M., provides a money-back guaranteed delivery by 10:30 a.m. for a flat rate of $75. The service is targeted at shippers requiring last minute changes to delivery schedules for a particular shipment or as part of a planned strategy to reach a market or customer earlier in the day.
“Similar guarantees in the market are based on a percentage of revenue, but we tested the market and found that customers want it kept simple,” said FedEx Freight President and CEO Douglas G. Duncan. “A flat rate means no guess work is involved. It requires simply a notation on the bill of lading or an on-line request – no phone calls are necessary. “As companies further compress supply chains and carefully manage inventory and cash flows, this level of service is more important than ever,” he said. Clearly come LTL carriers are looking at these time definite shipments, that travel on existing schedules, to generate additional revenues during these difficult times.
A Challenging Year Ahead
In the first quarter of 2009 there is too much LTL capacity chasing a shrinking volume of freight. Terminal closures and carrier consolidations are inevitable as the capacity adjusts to meet demand. It will be a challenging year ahead.