LTL truckers coping with sluggish demand after ‘soft’ first quarter

Less-than-truckload trucking executives’ expectations of freight demand have run the gamut in the last five years. From the boom year of 2018 to the Covid-inspired depths of 2020-21 to the recovery of 2022, they have seen it all.

Now, the freight slowdown is greeting 2023 as an unusually sharp falloff in demand in the first quarter has taken hold. At Yellow, which controls about 10% of the $58 billion less-than-truckload (LTL) market, that environment caused a doubling of its net loss of $54 million in the 2023 first quarter.

“One of the benefits at Yellow with all the brands that we’ve owned over a large number of years is the large and loyal customer base because of that,” Yellow CEO Darren Hawkins said on a recent analysts call. “When you look at the publicly reported numbers of total customers in the LTL area for each individual company, Yellow typically is at the top of that list because of all those relationships been built over a long period of time.”

However, running one long-haul unit (Yellow) along with three separate regional companies (Reddaway, Holland and New Penn) became costly and somewhat confusing to shippers, Hawkins admitted.

“Certainly, One Yellow is our pathway to take some of the frustration out of the customer service experience that our customers see, where they can do business with one website, one phone number, one account executive, one driver from our company visiting their location on a daily basis, those type things,” Hawkins said.

“So, we do believe there’s a tremendous growth opportunity on the other side of One Yellow. “While we’re getting there, I like the responsiveness and the loyalty of the customers that we have. They’ve continued to give us a large number of shipments on a daily basis.”

Somewhat surprisingly, Yellow officials say pricing has been relatively strong – especially considering the lack of usual seasonality demand as we swing to the peak freight seasons.

“In Q1, we improved year-over-year despite following strong growth a year ago,” Hawkins said of pricing. “We have been consistent with our strategy to improve yield on the freight moving through Yellow’s network. This is the 10th consecutive quarter where LTL revenue per hundredweight excluding fuel has increased on a year-over-year basis.”

For the month of April, Yellow received between 1%-2% rate increases on contract freight for accounts that ended in that month, Yellow CEO Darren Hawkins said on a conference call with analysts. Year-to-date contractural renewals average between 2%-3%—compared with year-ago increases averaging greater than 10%, Yellow officials said.

Nevertheless, Yellow is facing contractural labor raises for its approximately 22,000 Teamsters employees in the 5% range year over year.

In the past year, according to Yellow officials, Yellow paid 40-cent an hour and penny per mile on both April 1 and another coming Oct. 1. In addition, the contract also includes the cost of living allowance clause, which provides for an additional increase effective April 1.

Based on this year’s measurement, Yellow’s union employees qualified for a cost of living adjustment of 37 cents per hour and 0.925 cents per mile, resulting in a total April 1st wage increase of $0.77 per hour and 1.925 cents per mile, which is a wage increase of approximately 3%.

For full-year 2023, Yellow expects its total union wage and benefits to increase between 4% and 5%. Since the inception of the current National Master Freight Agreement that became effective in 2019 through April 1, 2023, Yellow has increased wages for union employees by nearly $5 per hour, or more than 20%.

At Old Dominion Freight Line, the nation’s second-largest and most profitable LTL carrier, first-quarter tonnage per day dropped nearly 12% year over year in the first quarter. ODFL executives acknowledged on an earnings call that the freight bounceback the carrier expected in the current quarter is unlikely.

“While our volumes stabilized during January and February as expected, we have not seen the acceleration in volumes that was originally anticipated,” outgoing CEO Greg Gantt said on a conference call.

At Yellow, total fuel surcharges were down slightly. From the first quarter to second quarter, fuel surcharge revenue will be down nearly double-digits, Yellow officials said. 

It’s not all negative in the LTL environment, however.  Knight-Swift Transportation Holdings, parent of the largest truckload carrier, is proceeding with plans to add 11 LTL terminals in the near future, according to a recent earnings presentation that showed the plans.

This is occurring after Knight-Swift bought two mid-sized Midwestern LTL carrier, Midwest Motor Express and AAA Cooper. Midwest is expanding its footprint in Kansas, Idaho, the Iowa-Illinois border, Nebraska and Wisconsin. AAA Cooper Transportation is adding capacity and terminals in Indiana, Michigan, South Carolina and Texas.

“Filling out a super-regional network in the short term and creating a national network in the long term will allow us to participate in more freight and enable us to find opportunities to further support our existing Truckload customers with LTL capacity,” Knight-Swift CFO Adam Miller said on the earnings call this spring.

While LTL providers such as Saia and XPO have added terminals recent as part of strategic growth, FedEx Freight is going the other way. It is closing 29 locations. Yellow also has said it’s trying to eliminate redundancy by selling excess terminals.

“The network optimization is expected to improve asset utilization, enhance network efficiencies, lead to cost savings and create capacity without the need to add terminals,” Yellow CEO Hawkins said earlier this year.