LTL Results Mixed

May 3, 2007
Nationwide less-than-truckload (LTL) carriers face a declining market and slow economic growth as they struggle to hold onto profits. Economic growth

Nationwide less-than-truckload (LTL) carriers face a declining market and slow economic growth as they struggle to hold onto profits. Economic growth of just 1.3% in the first quarter of 2007 translated into modest declines in revenues and freight volumes for some LTL carriers. ABF’s long-haul LTL unit, ABF Freight System, reported revenues for the first quarter were down slightly (1.5%). YRC Worldwide’s LTL operations reported a similar decline (1.9%) in revenues. Both carriers experienced tonnage declines in the period with ABF average daily tonnage down 5.8% from the year-earlier period and YRC National tonnage off by 4.5%. (Both the former Yellow Freight and Roadway Express units are reported together.)

While overall revenues and tonnage may have declined, the two major national LTL carriers each reported improved yields. ABF had a 4% increase in yield while YRC National improved its yield by 2%. This suggests that despite lower volumes and strong competition, the carriers are able to maintain rate discipline.

Regional carriers fared better. Saia Inc. reported first quarter revenues rose 13% to $231.8 million. Tonnage increased 11.7%, and yields improved by 1.5%. Acquisitions were a large part of Saia’s growth.

The integration of Connection Company added four states and Madison Freight Systems provided Saia’s shippers with full-state coverage in Wisconsin.

At Vitran Corp., the acquisition of PJAX Freight System improved inter-regional density and helped the company reach $136.2 million in first-quarter revenue. Equity analyst firm Stifel Nicolaus noted the LTL operations were adversely affected by weather and a strike at the Canadian National Railway but in the overall financial picture for the LTL unit, it renegotiated its insurance policy with favorable rates and reduced cargo claims by 20%, helping to offset some of those impacts.

Vitran will merge 27 facilities in the areas that overlap with the acquired PJAX network into 14, achieving some further synergies, says the equity analyst.

Looming on the horizon for union carriers YRC and ABF is the National Master Freight Agreement with the International Brotherhood of Teamsters. That contract expires on March 31, 2008. In the run-up to the successful 1998 contract, shippers began diverting freight from carriers who were signatories to the contract as they put contingency plans in place. A strike during the previous contract had some shippers on edge in that period. One carrier, Yellow Transportation (now part of YRC Worldwide), reportedly saw a 3.6% decline in volumes from late in 1997 into the first quarter of 1998. At the time, carriers reported diversions increased as they got closer the contract deadline. A number of factors had changed by the time the current contract was negotiated and the impact of diversions seemed less pronounced.

Though LTL carriers have not opened talks with the Teamsters, ABF has indicated it will negotiate with YRC. The carriers have indicated they will await the outcome of the UPS parcel negotiations which opened in September 2006. The UPS contract expires in July of 2008 while the LTL contract will expire at the end of March.

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