ODFL announces rate hike
July 24, 2012
North Carolina-based Old Dominion Freight Line (ODFL) became the latest less-than-truckload (LTL) carrier to roll out a general rate increase.
Effective August 6, ODFL said its base rates will increase 4.9 percent, adding that the exact increase may differ for customers due to different factors, including lanes utilized and the distance shipments move. The company added that the tariffs affected by the increase are the ODFL 559/555 and the 505 Canadian tariffs. The rate increase will also provide for a nominal increase in intrastate, interstate or cross-border lane charges, as well as being used to offset increasing costs.
“We’re naturally sensitive to our customers’ budgets,” said Todd Polen, Old Dominion’s vice president of pricing, in a statement. “Raising our rates is something we do reluctantly and after considerable analysis. We’re taking this action to ensure that our services remain best-in-class. We continually reinvest in our business. This modest increase will enable us to absorb the rising cost of new equipment and escalating insurance costs while maintaining competitive wages and benefits for our employees.”
This announcement by ODFL follows similar ones by many of its LTL brethren, including: a 6.9 percent increase by UPS Freight, effective August 1; a 6.9 percent increase by ABF Freight System, effective July 25; a 6.9 percent increase by YRC Freight, which took effect July 9; and a 6.9 percent increase by Con-way Freight, effective August 1.
These non-contractual rate increases typically account for roughly 20-to-40 percent of LTL freight, according to industry estimates.
Satish Jindel, president of Pittsburgh-based SJ Consulting, recently told LM that these rate increases are a good thing, because the LTL industry needs to become more profitable.
“The market is getting tighter, and it is a good time for this,” he said. “Capacity is part of this in terms of the two types of capacity the industry deals with: one being fixed capacity and the other being variable capacity.”
Regarding the latter, Jindel said it is very tight at the moment, as it involves driver availability, which is very challenging at the moment.
While raising rates is seen as key for recovering revenues lost during the recession, Jindel said there are other effective ways to address this situation. One way is for LTL carriers to charge for what they actually handle.
“If a carrier is charging for 760 pounds and the Bill of Lading says 740 pounds, charge for the extra 20 pounds,” said Jindel. “About 4 percent of industry margins would improve if carriers did that. This is a bad industry practice from years ago.”
Another thing that can help LTL margins, according to Jindel, is freight classification and using FAK (Freight All Kinds) rates for average pricing. Leveraging both these practices would improve margins without rate hikes, said Jindel.
As LM reported during the fourth quarter of last year, anecdotal evidence suggested that many LTL carriers are seeing rates recover and are turning their attention to rate increases, following a challenging 2009 for the sector in which LTL carriers to a degree were highly focused on driving volume gains with pricing power largely diminished.
LTL carriers are also seeing marked improvements in pricing, volume, and weight per shipment in recent months, according to analyst reports.
An LTL executive told LM that there is no question that LTL rates are starting to firm up on the yield side and it has become a focus for carriers—with all having some sort of yield improvement process to raise rates in place.
Ed Wolfe, analyst at Wolfe Trahan & Co, wrote in a research note that while LTL capacity still is much more available than LTL, LTL pricing is “going in the right direction as the largest carriers remain very focused on improving rates.”
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