LTL Carriers: Ready to roll
A healthy economy and firm prices have produced the best LTL environment in years.
By Jim Thomas -- Logistics Management, 7/1/1998
How long will it last? That's the question on the minds of less-than-truckload carriers and shippers alike. All sectors of LTL carriage--union, non-union, national, interregional, and regional--collectively posted their best numbers in 1997. Consider the results reported by the national carriers:* Roadway Express reported a 1997 net income of $36.9 million, a 69.0-percent increase over 1996 figures. LTL tonnage increased by 7.7 percent.
* Yellow Freight System's tonnage grew by 4.3 percent during 1997 and shipments per day were up by 9.7 percent. Net income was $52.4 million in 1997 (excluding a special restructuring charge), compared with $1.1 million in 1996.
* Arkansas Best Corp., parent of ABF Freight System, announced a return to profitability in 1997, reporting an income of $21.0 million vs. a loss of $34.2 million in 1996.
* Non-union national LTL carrier Overnite Transportation Co. posted its first annual profit since 1994. The company turned from its worst year ever in 1996 to earn $23.8 million on revenue of $946 million in 1997.
* Consolidated Freightways announced an operating income for 1997 of $59.7 million (before a fourth-quarter non-cash charge to earnings) compared with an operating loss of $73.1 million in 1996. (For the first 11 months of 1996, the company operated as a subsidiary of Consolidated Freightways Inc. In December 1996, the company became a separate, independent, publicly traded company.)
W. Roger Curry, president and chief executive officer of Consolidated Freightways, credits his company's performance to a healthy economy, internal cost reductions, LTL rate stability, and an energized work force. "Operating as an independent company, we issued our team members restricted shares of stock," says Curry. "When people have ownership, they become more aggressive."
The LTLs were able to increase rates over the past year because they operated at near-capacity levels. In the past, the less-than-truckload carriers competed for freight by discounting rates, a practice that increased market share but damaged profitability. "A colleague called it 'hauling freight for practice,'" says Curry. "We don't need more practice. We have become more selective in the freight we haul."
Bob Davidson, vice president of marketing and pricing for ABF Freight System, does not expect the LTLs to revert back to the practice of discounting their rates, even if demand weakens. "After 18 years of deregulation, carriers have placed pricing issues in their proper perspective as a marketing tool," says Davidson. "The industry has matured. Carriers now understand their costs and how to administer price."
Thus enlightened in the complexities of costing and pricing, carriers have been able to reduce costs and attract more profitable freight. For example, ABF increased its LTL revenue per hundredweight by 6.5 percent in the fourth quarter of 1997 to $17.62, which offset a slight drop in tonnage.
First Quarter Diversions
Concern over negotiations between unionized labor and LTL management led shippers to divert some freight to non-union carriers during the first quarter of 1998. According to a survey from investment firm Schroder & Co., 38 percent of shippers shifted some freight. "This diversion was subtle; it was not a major event," says Davidson. "Now that a new [five-year] Teamsters contract has been approved, we expect that the freight will be diverted back to union carriers."
Dawson Cunningham, chief financial officer of Roadway, explains that much of the freight diversion occurred in shorthaul or regional lanes. "We are still working to get that business back," he says. Roadway's Canadian business (from the purchase of Reimer Express Lines of Winnipeg) offset the domestic slowdown, and the net result was a 4.0-percent increase in total tonnage in the first quarter.
The diversion was not so subtle at Yellow Freight, where the company's net loss for the first quarter was $647,000. Operating income for Yellow Corp. was $2.4 million, compared with $15.2 million in the first quarter of 1997. In announcing the results, A. Maurice Myers, chairman, president, and CEO of Yellow Corp., said the loss was expected. "With the labor settlement behind us, business is improving and our outlook is positive," he noted.
Conversely, non-union Overnite reported first-quarter net earnings of $9.7 million, compared with a $1.2 million profit during the first quarter of 1997. Overnite attributed its 20.0-percent first-quarter revenue increase to growing tonnage, strong yields, and an increased share of customers' business.
Beyond the Nationals
The national carriers were not the only sector of the LTL industry to enjoy 1997. Multi-regional Jevic Transportation Inc., which completed its initial public offering last October, boosted its 1997 operating revenues by 23.0 percent, to $190.8 million. Operating income increased 64.0 percent to $15.4 million. The positive performance continued into the first quarter of 1998, when operating revenues increased 24.0 percent over figures from the first quarter of 1997, to $54.8 million. Operating income during the same period increased 60.0 percent, to $3.8 million.
Con-Way Transportation Services (CTS) increased its operating income by 46.0 percent (to $147.2 million) and its revenue by 14.0 percent (to $1.47 billion). CTS posted an enviable operating ratio of 90.0 percent. First-quarter operating income jumped 77.3 percent from the first quarter of 1997, to $50.5 million. The first-quarter operating ratio of the Con-Way regional carriers (Con-Way Southern Express, Con-Way Central Express, and Con-Way Western Express) was 86.2 percent. (The operating ratio is derived by dividing operating costs by operating revenues.)
In addition, the five regional companies that make up USFreightways Corp.--Bestway, Dugan, Holland, Red Star, and Reddaway--increased revenue, shipments, and tonnage in 1997. Operating ratios at each of the subsidiaries improved, as well as the average revenue per shipment, which increased by 5.0 percent in 1997.
The regional and multi-regional LTLs have profited from the same business environment as the nationals and from an increased demand for overnight services, say analysts. Some of the best yields in the industry are occurring in regional lanes, where smaller LTL carriers may benefit from higher densities.
Bright Outlook
Carriers, shippers, and analysts expect the LTL sector to maintain its strength through the remainder of 1998. The five-year contract between the Teamsters and the unionized LTL carriers should provide the industry with some stability. According to investment firm Morgan Stanley Dean Witter, the annual wage increase of 2.4 percent over the course of the contract is "well below pricing trends in the LTL industry."
On the expense side of the balance sheet, diesel-fuel prices remain stable. Most carriers also have instituted aggressive programs to cut costs and improve productivity. Roadway's Cunningham notes that the new union contract continues to allow carriers to use intermodal transportation for 28 percent of their linehaul miles. This handoff to the railroads saves the expense of running a tractor and driver across the country. "As our cost structure becomes more variable, we are seeing better profit margins," he says.
Carriers have increased revenues by expanding their services, most notably in the time-definite-delivery and international markets. For example, Con-Way Transportation Services expanded its time-definite Con-Way Now service to 48 states last year. A joint venture between Consolidated Freightways and Alfri-Loder Group of Monterrey, Mexico, is scheduled to begin this month.
Some LTL executives are concerned that the attractive rate environment could deteriorate. Carriers managed to hold onto 5.0-percent increases throughout 1997, but rate increases cooled during 1998's first quarter before the Teamsters contract was announced. To many in the industry, pricing still depends on demand, and demand depends on a robust economy.
NATIONAL LTL CARRIERS - 1997 vs. 1996
[Thousands of Dollars]
1997 1996 % 1997 1996 % 1996 1997
Carrier Revenue Revenue Change Net Inc. Change O.R. O.R. Change
Roadway Express $2,577,328 $2,338,974 10.2% $34,516 $20,093 71.8% 97.8 98.4 -0.6
Yellow Freight 2,509,537 2,323,710 8.0% 36,945 -28,531 N.A. 97.0 98.7 -1.7
Consolidated Freightways 2,187,801 2,052,121 6.6% 29,842 -58,501 N.A. 97.7 103.9 -6.2
ABF 1,136,402 1,102,661 3.1% 30,645 -13,984 N.A. 94.5 100.8 -6.3
Overnite 945,968 960,998 -1.6% 23,809 -23,391 N.A. 96.8 105.0 -8.2
Watkins Motor Lines 650,896 531,135 22.5% 23,571 14,997 57.2% 93.2 94.8 -1.6
TOTAL $10,007,932 $9,309,599 7.5% $179,328 -$89,317 N.A. 96.8 100.4 -3.6
N.R. means not reported; N.A. means not applicable
INTERREGIONAL LTL CARRIERS - 1997 vs. 1996[Thousands of Dollars]
1997 1996 % 1997 1996 % 1996 1997
Carrier Revenue Revenue Change Net Inc. Net Inc. Change O.R. O.R. Change
Con-Way $1,359,550 $1,170,960 16.1% $71,874 $49,727 44.5% 88.6 91.3 -2.7
Preston Trucking 447,290 414,735 7.8% -4,225 -7,509 N.A. 100.0 101.3 -1.3
NW Transport Service 443,300 448,600 -1.2% N.R. N.R. N.A. N.R. N.R. N.A.
Old Dominion 328,844 293,006 12.2% 10,038 6,144 63.4% 93.9 95.6 -1.7
TOTAL * $2,578,984 $2,327,301 10.8% $77,687 $48,362 60.6% 91.8 94.2 -2.4
N.R. means not reported; N.A. means not applicable * Totals for net income and operating ratio exclude NW Transport Service.
Source: Transportation Technical Services Note: Chart numbers are derived from carrier reports to the Department of Transportation and other sources and may vary from figures in reports to shareholders.
NORTHEAST & MIDDLE ATLANTIC LTL CARRIERS - 1997 vs. 1996
[Thousands of Dollars]
1997 1996 % 1997 1996 % 1996 1997
Carrier Revenue Revenue Change Net Inc. Net Inc. Change O.R. O.R. Change
Estes Express Lines $404,615 $317,569 27.4% $32,248 $23,842 35.3% 87.0 87.9 -0.9
New Penn 203,299 181,871 11.8% 25,225 24,197 4.2% 79.4 83.4 -4.0
USF Red Star 194,800 196,399 -0.8% N.R. N.R. N.A. 99.6 102.0 -2.4
Jevic Transportation 190,821 154,799 23.3% 2,417 3,849 -37.2% 91.9 94.0 -2.1
NEMF 139,593 117,651 18.7% 9,868 6,371 54.9% 92.4 94.1 -1.7
Pitt Ohio Express 138,298 114,399 20.9% 10,719 14,526 -26.2% 86.5 85.3 1.2
Wilson Trucking 95,965 82,799 15.9% 3,672 2,201 66.8% 93.9 95.6 -1.7
TOTAL * $1,367,391 $1,165,487 17.3% $84,149 $74,986 12.2% 89.3 91.3 -2.0
N.R. means not reported; N.A. means not applicable * Totals for net income exclude USF Red Star.
MIDWEST LTL CARRIERS - 1997 vs. 1996
[Thousands of Dollars]
1997 1996 % 1997 1996 % 1996 1997
Carrier Revenue Revenue Change Net Inc. Net Inc. Change O.R. O.R. Change
American Freightways $870,319 $729,042 19.4% $17,801 $7,855 126.6% 94.8 96.3 -1.5
USF Holland 711,137 595,378 19.4% 39,473 28,609 38.0% 90.8 91.4 -0.6
USF Dugan 171,000 148,527 15.1% N.R. N.R. N.A. 96.4 97.8 -1.4
Crouse Cartage 126,100 107,502 17.3% N.R. 1,662 N.A. 97.5 97.3 0.2
TOTAL * $1,581,456 $1,324,420 19.4% $57,274 $36,464 57.1% 93.0 94.1 -1.1
N.R. means not reported; N.A. means not applicable * Totals for net income exclude USF Dugan and Crouse Cartage.
SOUTHEAST & SOUTH CENTRAL LTL CARRIERS - 1997 vs. 1996[Thousands of Dollars]
1997 1996 % 1997 1996 % 1996 1997
Inc. Change O.R. O.R. Change
Averitt Express $370,405 $322,069 15.0% $17,602 $5,932 196.7% 91.5 95.9 -4.4
Southeastern Freight 347,024 304,226 14.1% 33,565 14,923 124.9% 89.9 94.3 -4.4
AAA Cooper 343,619 294,634 16.6% 22,426 20,246 10.8% 90.7 90.5 0.2
Saia Motor Freight 311,167 264,318 17.7% 8,706 2,923 197.8% 93.7 96.0 -2.3
Central Freight Lines111,869 N.R. N.A. 2,375 N.R. N.A. 94.9 N.R. N.A.
Southwestern 90,401 88,154 2.5% 819 948 -13.6% 98.5 98.1 0.4
TOTAL * $1,462,616 $1,273,401 14.9% $83,118 $44,972 84.8% 91.8 94.4 -2.6
N.R. means not reported; N.A. means not applicable * Totals exclude Central Freight Lines.
WESTERN & ROCKY MOUNTAIN LTL CARRIERS - 1997 vs. 1996
[Thousands of Dollars]
1997 1996 % 1997 1996 % 1996 1997
Carrier Revenue Revenue Change Net Inc. Net Inc. Change O.R. O.R. Change
Viking Freight $475,094 $965,830 -50.8% N.R. N.R. N.A. 103.9 114.2 -10.3
USF Reddaway 198,700 177,998 11.6% N.R. N.R. N.A. 93.2 94.8 -1.6
USF Bestway 133,500 113,058 18.1% N.R. N.R. N.A. 86.9 89.4 -2.5
Motor Cargo 102,191 90,827 12.5% $5,092 $3,324 53.2% 91.0 93.0 -2.0
GI Trucking 100,015 78,420 27.5% -260 -5,324 N.A. 99.4 109.4 -10.0
Lynden Transport 65,492 64,320 1.8% 5,723 1,944 194.4% 95.2 95.0 0.2
TOTAL * $1,074,992 $1,490,453 -27.9% N.A. N.A. N.A. 97.6 107.6 -10.0
N.R. means not reported; N.A. means not applicable * Totals for net income not shown since only reported by half of group.
Source: Transportation Technical Services
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