LTL Sector Continues To Suffer

Public carrier tonnage (which represents ~64% of industry tonnage) declined 1.9% year-on-year in the third quarter, and the less than truckload (LTL) freight market has deteriorated significantly since mid-summer, says a report from Stifel Nicolaus.

Turning normal seasonality on its head, for the first time in the history of many carriers, absolute tonnage in July was greater than August which was greater than September, said analyst David Ross. September was particularly weak in 2008 due to the freezing of the credit markets and significant decline in manufacturing activity, he added. “We have heard from shippers and carriers that October was at least as bad.”

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Public carriers gaining the most tonnage share in the third quarter (2008 vs. 2007) were Old Dominion Freight Line, FedEx Freight and Con-way Freight.

Public carriers losing the most tonnage share were YRC Worldwide and Arkansas Best.

“Our outlook for LTL tonnage is that fourth-quarter 2008 will show further year-on-year declines. The first quarter of 2009 will be a very challenging environment with seasonally soft volumes, and the second quarter will be, at best, flat year on year,” said the Stifel Nicolaus report.

“The second half of 2009 is a question mark but will have easier comparisons, as it laps the freezing of the credit markets in September/October, so we should see positive year-on-year tonnage growth for the first time by next fall.”

The analyst expects LTL volumes to pick up in 2010 it won't be a significant rebound similar to 2003-2005.

Industry pricing pressures intensified throughout the third quarter. “With no strong rebound in demand expected (and sequentially worse tonnage quarters likely in the fourth quarter and first quarter of 2009), we believe pricing should get worse [weaken] from the third quarter, even with the steep decline in fuel prices.”

Operating ratios for all carriers (except Old Dominion) deteriorated from third-quarter 2007 to third-quarter 2008, as fuel surcharge-driven yield growth was unable to offset tonnage declines and cost increases.

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