The less-than-truckload (LTL) sector in the US has been challenged financially for decades, and was hit especially hard when the recession started in 2008 and for several years afterwards, highlighted by the near-death experience of YRC Worldwide.
But it does seem of late that the LTL group has really turned the corner, as evidenced by our usual review of the results in Q2 and the first half of 2013 for the five publicly traded LTL carriers we follow. (That group does not include the major LTL operations of FedEx and UPS, which do not break out their numbers for LTL in a way we can use in the analysis).
From an overall industry perspective, the American Trucking Associations said trucking volumes (including LTL) were up 4.3% in April year-over-year, 6.5% in May and 5.9% in June, but as with the truckload carriers, most of the LTL providers characterized volumes as lackluster. Average tonnage changes across the group were just a +1.2%. We are not sure how to reconcile the differences between the ATA's numbers and what the carriers are reporting.
Those modest volumes make the LTL sector's profit performance even more impressive. Four of the five carriers in the group were in the black in Q2, and the one that wasn't - YRC - made an operating profit and trimmed its overall loss to just $15 million on $1.2 billion in revenue.
Overall revenue growth for the group was 3.6%.
As usual, Old Dominion led the way, sporting revenue growth of 8%, tonnage growth of 5.6%, and profit growth of 21.8%, as its performance continues to impress quarter after quarter.
Overall, total sector profitability was up 13%, a solid performance given the weak rise in total tonnage.
Saia and Conway Freight appear to be learning some lessons from Old Dominion, with solid quarters in terms of profits. All told, the five carriers drove their operating ratios (operating expense divided by operating revenues, a key financial measure in the transportation industry) down to the low 90s, improving from 93.7% in 2012 to 93.4% this year.
Of course, Old Dominion again led the way, seeing its OR fall to an amazing 83.5%, versus that group average (including Old Dominion's number) of 93.4%. If you strip out Old Dominion, the average rises to 95.8%, meaning Old Dominion operates at an incredible more than 10-point advantage over its rivals.
But as is happening with increasing regularity of late, all five LTL carriers saw operating ratios of under 100, after several years where this was never the case.
By way of comparison, that LTL OR average of 93.4% in Q2 compares to a group average of 87.9% for the truckload carriers in Q2. The LTL best of 83.5% for Old Dominion compares to a TL best of 78.1% for Heartland Express.
In general, the LTL carriers continue to stress similar themes: network optimization, a focus on yield management, eschewing "bad freight," and other steps to improve profits even in at the expense of lower volumes.
LTL Carrier Q2 2013 Results
Results for the first half of the year, as shown in the table below, are largely the same as for Q2, though performance was better in Q2 than Q1. For example, average OR for the full 1H for the group
was 95.2%, versus that 94.3% in Q2 alone.
Net income in the 1H was up more than 94%, but thar was largely due to the big changes at YRC, which saw a $104 million loss in 2012 and narrowed that to just $39 million this year, posting small operating profits in both Q1 and Q2.
LTL Carrier 1H 2013 Results
Some noteworthy management comments from the carriers from their Q2 earnings releases are as follows:
YRC Worldwide
Consolidated operating income decreased slightly from $15.5 million to $14.3 million, but was in the
black again.
Major differences between the YRC Freight and YRC regional businesses. Freight had an operating ratio of over 100 (101.1) in the quarter, versus just 94.3% for the regional unit. Tonnage in Q2 was down 3.6% at Freight, and up 1.2% at regional.
Arkansas Best
ABF's second quarter 2013 revenue rose slightly, but higher costs for salaries, wages and benefits continued to weigh on results, as has been the case in recent quarters.
Company at last reached a contract with the Teamsters union, in which it was trying to reduce costs compared to rivals such as YRC, which had been able to gain union concessions will in bankruptcy.
The company said "The agreement achieves the stated goals of lowering ABF's costs and better serving its customers while putting it on a path for improved profitability. With the new labor contract, ABF also continues to provide the best-paying jobs and benefits package for its Teamster employees when compared with their union and non-union counterparts."
Old Dominion
Company said it produced an on-time delivery percentage of 99% and a cargo claims ratio of 0.31% in Q2, which is the best levels it has ever achieved.
Revenue per hundredweight, excluding fuel surcharge, increased 3.0% for the 2013 second quarter from the same quarter last year, which the company said "reflects an improving pricing environment for the industry as well as our continued commitment to yield management."
Conway Freight:
Company said revenue per hundredweight, or yield, increased 2.7% from the previous-year second quarter. Excluding fuel surcharge, yield rose 3.3%.
It added that it is "executing well against its key strategic initiatives of lane-based pricing and line-haul optimization."
Saia:
LTL yield was up 3.2% due to the favorable impact of pricing, highlighted by its seventh consecutive quarter of 98% on-time service.
Source: SCDigest