Jevic puts the brakes on operations

LTL carrier cites market conditions as driver for suspending business

Jeff Berman, Group News Editor -- Logistics Management, 5/19/2008

DELANCO, N.J.—Due to various market conditions, Jevic Transportation Inc., a regional less-than-truckload (LTL) carrier providing services in the Northeast announced today it is discontinuing operations.

In a letter to customers, Jevic President and CEO David H. Gorman said “the current high fuel costs, economic downturn, increasing insurance costs, and tightening credit markets have made this decision necessary.” The letter also noted that Jevic will cease providing pickup service, effective today, but it will continue to deliver all freight within its system prior to closing.

With market conditions in the LTL sector remaining unsteady and capacity continuing to outstrip demand, this news did not catch anyone off-guard. In fact, one LTL executive who asked not to be named told LM this could be the beginning of a trend which sees more LTL operators put the brakes on business.

"It would not be surprising over the next several months to see other players leave the market," said the LTL executive. "Between poor demand, eroding pricing, and high fuel costs, the small-to-mid-sized carriers can't keep up, especially with shippers beating them up on pricing and fuel surcharge. Everyone's being squeezed."    

This sentiment was shared by Satish Jindel, president of SJ Consulting Group Inc., a Pittsburgh-based transportation consulting firm, who said that this may be a glimpse into the future of the LTL industry. Jindel said that it is possible $1 billion worth of capacity may exit the LTL market between 2008 and 2009, with some of that capacity coming from midsize carriers like Jevic.

Jevic, Jindel explained was a “hybrid” company, with both LTL and light truckload services and no breakbulk services. Another company that previously attempted this model was G.O.D., but G.O.D. had trouble with service and a value proposition for shippers with this model, which weakened shippers supply chain needs.

“With the way market capacity has been greater than demand, companies of this kind will struggle because of the difficulties of customers to understand what the true value proposition is,” said Jindel. “Other companies with revenues in the $50-to$100 million revenue range are likely to experience these types of challenges in the next four-to-six quarters.”

Even though Jevic is existing the marketplace, Jindel said there are still several other options for shippers to consider when looking at LTL services. He also said this news will not affect market dynamics from a shippers’ point of view. Rather, from a shippers perspective, he said that if carriers are not able to cover their operating costs—especially fuel which continues to be unpredictable (diesel is currently at $4.552 per gallon and up more than 30 percent year over year, according to the Oil Price Information Service) and continues to increase—and if carriers are unable to recover fuel costs, it is inevitable the LTL industry will end up with fewer carriers.

And carriers without proper pricing that allow them to recover total costs and earn reasonable margins may face the same demise as Jevic, he said.

“Being aggressive on pricing where it affects your financial stability,” is a deadly approach to staying in business,” said Jindel.

Jason Seidl, an independent transportation analyst whom was previously at Credit Suisse, told Bloomberg that Jevic shutting down may be a “boost to other trucking companies,” because it provides them with the opportunity to raise rates. And like Jindel, Seidl expects more trucking companies to leave the market, which will help the out-of-balance supply/demand situation.”

In July 2006, Jevic was acquired by Sun Capital Partners, a private investment firm. The sale price was $40 million, plus $12 million in current income tax benefits, according to a report in The Philadelphia Inquirer. At the time of the sale, Jevic was an operating subsidiary of SCS Transportation Inc. The Bloomberg report added that both Jevic and LTL carrier Saia were spun off by YRC Worldwide Inc. in 2002 as SCS Transportation and SCS took the Saia name after selling Jevic.