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Truckers continue to report low demand, rate declines

The fourth-quarter financial reports from a variety of less-than-truckload carriers showed steep volume declines at the end of 2008 continuing into early 2009, putting some carriers at risk.


Most carriers said demand declines got progressively worse throughout the fourth quarter, a trend identified by Purchasingdata.com's transportation services buying plans index, which has shown declines in demand for freight since August. And those declines have some carriers reducing LTL rates, while others warn that buyers should beware of carriers offering rates that are unsustainable.


In its fourth-quarter results, LTL carrier YRC said daily tonnage dropped 23.6% at its YRC Regional business (the former USF and New Penn businesses) and declined 14.6% at its National unit (the combined Yellow and Roadway businesses). On a conference call with analysts, CEO William Zollars said in the fourth quarter "Lower volumes and declining prices had the most significant impact on our fourth quarter earnings along with some accelerated integration investments and pension settlement costs."


"Pricing remains very competitive and has continued to decline since the third quarter," Zollars said. "The rapid drop in fuel prices has made it challenging to renegotiate overall rates with customers as their contracts come up for renewal and has impacted our near-term profitability."


Analyst Thom Albrecht says "YRC remains a very high risk, potentially high reward company. The next several weeks are critical, not just to reset its debt covenants, but perhaps for survival."


But YRC is certainly not the only trucker reporting decreased demand. The UPS Freight LTL division pulled down the quarterly results for Big Brown. According to a UPS statement, "LTL revenue declined 9.6% with shipments per day down 8.2% in the weakest LTL environment in decades."


UPS' CEO Scott Davis did not forecast any return to freight volumes soon. "Since economists do not expect any meaningful recovery until 2010, earnings in 2009 will suffer," he said in the statement. "Lower volume levels and reductions in package weight will put further pressure on margins. We anticipate the first quarter will be weak, with slight improvements later in the year as initiatives take hold."


Saia said its LTL tonnage per day decreased 4.7% in the fourth quarter while LTL shipments were down 4.1%. CEO Rick O'Dell said on a conference call that "The environment is obviously very challenging as we experienced lower tonnage and shipping volumes, which led to an increasingly competitive pricing arena." O'Dell also said Saia plans to issue a general rate increase of 4.9% this month.


Old Dominion Freight Lines reported its first decline in quarterly tonnage in more than eight years, saying shipments declined nearly 12% in the quarter and tonnage was down almost 5%. "We have not seen any indications that would provide much potential for a near-term recovery in the economy," CEO David Congdon told analysts on a call.


But despite the volume declines, Old Dominion said it does not plan to reduce its rates to gain market share. "In our model, the economics of price cutting just doesn't make financial sense because it takes a 3% to 4% increase in tonnage to offset a 1% decrease in pricing just to break even," Congdon said. "That said, we have continued and will continue to defend existing customer relationships against competitors who are throwing out cheaper prices to attempt... to achieve higher volume."


Analysts at Stifel, Nicolaus said in a note this week "If YRC Worldwide shuts down, Old Dominion is best positioned, in our view, to grab whatever share they want from all YRC companies."

Con-way told a similar story in its fourth-quarter report, saying its daily LTL tonnage declined 7.7% in the quarter, getting lower each month, dropping 3.8% in October, 9.1% in November and 10.6% in December, and January is worse still.


John Labrie, president of Con-way Freight, told analysts that pricing has gotten
worse in January. "We were I think very direct throughout the course of the last year, talking about the fact that from our point of view the pricing environment continued to worsen as the year went on. And we have seen that not only be the case in the fourth quarter but in January it has intensified as well, both as it relates to specific deal volume flow that we've seen in our pricing department, both with existing and new customers as well as the kind of prices that shippers are able to get from carriers."


And Arkansas Best reported tonnage declines of 11.5% in the quarter that led the company to reduce its workforce by 18%. CEO Robert A. Davidson said the carrier's fourth quarter results "reflect the profitability effects of ABF's decelerating tonnage levels and competitive pricing pressures in the midst of a freight environment of unprecedented weakness."


Arkansas Best did say it had engaged an advisory firm in the fourth quarter "to help develop a formal strategic plan and to assist in the identification of potential acquisition opportunities."