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Truck rates buck trend
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July 5, 2001: 2:09 p.m. ET
Major truckers winning increased rates despite fall in freight levels
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - In the face of falling demand for truck freight, some of the nation's largest trucking companies are still seeing improved rates.
Yellow Freight System, a unit of Yellow Corp. (YELL: down $0.22 to $19.32, Research, Estimates) announced it is raising rates 4.9 percent as of Aug. 1, even as freight levels are seen declining from year-ago levels. Competitor Roadway Express Corp. (ROAD: up $0.17 to $24.15, Research, Estimates) reported fiscal second-quarter results earlier this week which showed revenue per ton of freight carried in the period up, even though overall freight levels are down.
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Roadway, one of the nation's largest trucking companies, is seeing rates rise despite declining freight levels. | |
The segment of the trucking industry that Yellow and Roadway serve is known as less-than-truckload, or LTL, and it handles a pallet-sized shipments of freight from numerous customers in the same truck. The network of terminals needed to sort the freight make the segment far less open to new entries than the truckload segment, which handles trailer-size shipments directly from point of origin to destination.
As recently as the mid-1990s, the growth of nonunion regional LTL carriers was hitting rates for the unionized, long-haul LTL carriers like Roadway and Yellow, as the sector saw pricing wars despite a growing economy.
But industry officials and observers say that slowing of growth at regional LTL carriers and the bankruptcy of several major LTL carriers in recent years, such as Preston Trucking, Nationsway Trucking, and ANR/Advance, have helped stabilize prices.
"The estimates are that those closures took about $1 billion of freight capacity out of the market," said John Hyre, spokesman for Roadway. "We're not aware anyone has added any significant capacity since then."
Roadway has yet to announce a rate increase, although Hyre said recent history suggests there will be one that takes effect in late summer or early fall. Its second quarter earnings report shows that the average revenue per LTL ton in the quarter rose 5.6 percent from year-ago levels to $419.34, even as the LTL tons fell 13.6 percent to 1.4 million tons in the most recent period.
Roadway is projecting that freight levels will fall 10 percent from last year's results during its fiscal third quarter, which includes the start of its peak shipping season. Still, the company believes that current business levels suggest the industry has hit bottom in terms of shipments and will soon start seeing gains.
"On a seasonally adjusted basis, we anticipate slight economic growth in the fourth quarter," said Mike Wickham, Roadway's CEO, in the second-quarter earnings statement. "As we move through the end of the year, we expect our comparisons to improve, since we began to see volume declines in the third quarter of last year. At this time, we're mildly optimistic about the second half of this year."
Analysts say stocks to stay sluggish
Still some analysts suggest it may be too soon for investors to jump into the sector, despite these positive signs.
"I was surprised to see pricing hold as it has the last six months," said Jason Seidl, transportation analyst with ABN Amro. "But they'll be announcing rate increases now anticipating we do have a turnaround coming in the fourth quarter. If you told me today that the economy is not going to improve for another year, is pricing going to continue to hold, I'd be more be more pessimistic."
Ed Wolfe, analyst with Bear Stearns, says the stocks in the segment are not likely to show much immediate gains, even if the numbers start to improve.
"Our conclusion is that despite some of the positive remarks from Roadway, actual performance and guidance lead us to believe that it is still too early to own ground transportation names and that we may continue to see additional signs of slowing and operating ratio deterioration before the economy begins to turn," Wolfe said in a note to clients Thursday.
Yellow, the nation's second-largest LTL carrier behind Roadway, has yet to report results, and spokesman Roger Dick said the company has no guidance on either second- or third-quarter freight levels. But he said that the company is confident about its rate increase sticking despite the downturn in the economy.
"We think there's getting to be a clear distinction between the quality service performers and those out there competing on price," he said. "We've been pretty successful hanging onto rates we've put in place the last four years."
But Yellow's two nonunion regional LTL subsidiaries, Saia Motor Freight Line and Jevic Transportation, have yet to announce any rate increases of their own.
Consolidated Freightways Corp., the No. 3 LTL carrier, has had more financial trouble in recent years than its two larger competitors, and analysts are looking for it to report a loss in the third quarter. But the company still expects to announce some kind of rate increase soon, according to spokesman Mike Brown, although he had no details on timing or size of the rate hike.
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"There seems over the last couple of years to have been a resolve to add value services, to price services to reflect their value," he said. "There's been some sort of industry sense of holding firm to those concepts."
CF saw its revenue per LTL ton increase 2.4 percent in its first quarter, at the same time its LTL tonnage dropped 5.9 percent. 
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