Could LTL rate hike be good news?

Several LTL carriers, including American Freightways, have set fall rate increases.

By Staff -- Logistics Management, 11/1/1998

When a number of less-than-truckload carriers recently announced general freight-rate increases of 5.0 to 6.0 percent, shippers appeared understanding, and analysts nodded in approval.

"It is a big positive to announce increases in the fall, when business is good," says James J. Valentine, an analyst with Morgan Stanley Dean Witter. "It makes more sense than sitting across the table from a customer in January and asking for an increase when your trucks are empty. This unprecedented action," he adds, "also shows that the industry is maturing by establishing pricing discipline, which has been [its] biggest problem in the past."

The increases announced recently have hovered consistently in the 5.0- to 6.0-percent range. Effective this month, ANR Advance Transportation Co. announced increases that range between 5.0 and 5.9 percent. American Freightways instituted increases ranging from 5.5 percent to 5.9 percent. AAA Cooper Transportation, Central Freight Lines, Yellow Freight System, Saia Motor Freight, Consolidated Freightways Inc., and the USFreightways carriers have announced similar increases. All regional motor carrier rate bureaus either have approved rate increases or are considering them.

But not every carrier is following the crowd. The Con-Way Transportation regional carriers and Roadway Express Inc. say they won't raise rates this year. "Con-Way has decided there is no need to raise prices prior to January 1999," says Gerald Detter, president and CEO of Con-Way. And Michael W. Wickham, chairman and CEO of Roadway, admits that his company's freight rates "do not adequately cover the costs for certain types of freight," specifically, lighter, smaller shipments. Roadway therefore has increased its minimum charge on small shipments.

Valentine says he doesn't expect any "upside surprises" on fourth-quarter earnings due to the increases. That's because a lot of LTL freight moves under rates set by contracts with individual customers.

Bill W. Huie, assistant vice president of corporate transportation at NCH Corp., agrees with Valentine's assessment. "The increases will probably generate only about 2.5 percent to 3.0 percent in total revenue for the carriers," he says.

Huie says that his company is not universally opposed to freight-rate increases but considers each request individually to verify that it is justified. "We feel that a 94-percent operating ratio (O.R.) is enough for an LTL carrier to recapitalize its business," he says. "We look at financials and get a feel for how well a carrier is managed. If the carrier can't get its O.R. down to 94 percent, then we'll talk increase. But if a carrier comes in here with an 85-percent O.R. and starts talking increase, [it] won't be talking for long."