Monday, December 14, 2009

Analyst Sees LTL Truck Rates Deteriorating

Low prices drop further as carriers battle to fill networks, Longbow Research's Klaskow says

Already low less-than-truckload rates are falling further as truckers become “incrementally more aggressive," Longbow Research says.

LTL trucking companies such as Con-way Freight are cutting deep into prices to build volume, Longbow analyst Lee Klaskow said in a Dec. 14 note to investors.

Con-way's “aggressive pricing strategy has its network nearly at full utilization,” Klaskow said, while Old Dominion Freight Line — which reportedly resisted discounting in recent months — has “ready capacity.”

FedEx Freight and Con-way Freight “continue to be the leaders when it comes to aggressive pricing,” said Klaskow. “We believe pricing can do down even further as we head into the slow winter freight season.” Shippers report rate discounts as deep as 85 percent, Klaskow said.

LTL rates were already anywhere from 5 percent to 15 percent lower than a year ago going into December, according to analysts and carrier executives.

Klaskow expects bitter price battles in coming quarters, despite forecasts calling for higher demand and more stable rates. The first quarter is typically the weakest for freight, he said, “and we expect pricing to be exacerbated by looser capacity.”

Larger LTL carriers are also trying to keep pressure on YRC and other struggling competitors.

Earl Congdon, executive chairman of ODFL, in October said LTL pricing was “not sustainable,” implying the cost of full utilization can be too high, he said.

“Those carriers,” he said of competitors pricing at or below cost, “are not going to be able to operate with the prices they’ve been quoting.

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