US LTL trucking firms push for fall rate hikes

US less-than-truckload carriers are pursuing rate increases this fall, and earlier than in previous years in some cases. Old Dominion Freight Line, the fourth-largest US LTL company, said Tuesday it would raise general tariff rates 4.9 percent on average Sept. 26.

The ODFL rate hike is the latest in a series of increases by major LTL carriers. YRC Freight, the third-largest US LTL company, raised its general tariff rates 4.9 percent on average Sept. 5. UPS Freight, the fifth-largest LTL player, will raise rates 4.9 percent Sept. 19. XPO Logistics said Monday it would raise non-contractual rates 4.9 percent on Sept. 26.

The majority of LTL freight moves under contract and won’t be affected by the general rate increases, but the general rate increases signal carrier resolve to increase pricing despite what’s been a lackluster freight market in 2016. “Our GRI … is intended to partially offset the rising costs of new equipment, real estate, technology investments, and competitive employee wage and benefit packages,” Todd Polen, ODFL vice president of pricing, said in a statement.

LTL truckers are sticking with the pricing discipline they’ve shown since a rate war during the recession slashed prices and cut profits, leading to several quarters or even years of losses for some companies. And those carriers are raising general tariff rates despite a broad-based drop in shipment volume and tonnage. Of the large publicly owned LTL carriers, only ODFL and FedEx Freight had more shipments in the second quarter than a year ago, with volumes at ODFL rising only 0.6 percent while FedEx Freight grabbed an 8 percent gain.

Shipments at 11 publicly traded LTL carriers declined 2.2 percent on average year-over-year in the second quarter, while tonnage dropped 6 percent and revenue fell 4 percent on average.

Lower fuel surcharges helped drag down revenue at many carriers, and cut into revenue per hundredweight or LTL yield. Excluding fuel surcharges, LTL yield often rose faster than a balloon. For XPO, the difference was between a 2.6 and a 5.5 percent yield increase.

The weakness continued in the third quarter. Saia last week said LTL shipments dropped 2.2 percent year-over-year in July and 1.3 percent in August. LTL tonnage at the Johns Creek, Georgia-based carrier was down 3.8 percent in July and 3 percent in August. At ODFL, LTL shipments dropped 1.5 percent year-over-year in August, and tonnage fell 1.4 percent.

“The decline in Old Dominion’s LTL tons per day for August reflects an operating environment that continued to be challenging,” David S. Congdon, CEO and vice chairman of the $3 billion Thomasville, North Carolina company said in a Sept. 2 statement. LTL pricing, he said, was stable. Excluding fuel surcharges, LTL yield at ODFL rose between 2 and 2.5 percent.

“The pricing environment remains much more rational in the LTL space than other modes of transportation, especially the truckload space,” James Welch, the CEO of YRC Worldwide, said during a second-quarter earnings conference call transcribed by Seeking Alpha. “From our point of view, LTL companies are focused on evolution of the supply chain distribution process and getting an adequate return on the capital,” he said, not on capturing market share.

A key reason for that rationality and discipline is balanced capacity. Most of the large LTL carriers shrank their networks considerably in the wake of the 2008 to 2009 recession. As a result, there’s not a lot, if any, excess LTL capacity, despite weak demand for LTL service.

That helped ABF Freight System in the second quarter. Despite a 0.4 percent drop in LTL shipments and a 4 percent drop in revenue, the ArcBest subsidiary won contracts and deferred pricing increases of 2.9 percent on average. “This level is below that of recent quarters, but still reflects a reasonable level of increase on our most price sensitive accounts,” Judy R. McReynolds, chairman president and CEO of ArcBest, said in a second-quarter earnings call.

“We have always realized the necessity of achieving compensatory pricing and timely rate increases from our customers in return for the value we offer as an asset-based supply chain partner,” McReynolds said during the July 29 call. “That disciplined pricing emphasis continues.”

SCS BlogVanessa Fryetrucking