Analyst: "Fierce" competition leading to discounts in LTL market

Despite some signs that overall freight demand has bottomed and is picking up, the less-than-truckload market remains extremely competitive, with some of the biggest carriers continuing to offer steep discounts in an effort to grab market share in the down economy.

Still, shippers think prices are going to go up over the next few months. Full Story.....

Freight volume: Tough times may be receding

Though the slump in freight volume is expected to continue for the rest of the year, many transportation providers believe the toughest stretch may now be in the rearview mirror. And if the downturn removes weaker competitors from the playing field, some companies believe that may open up opportunities for growth and market share gains.

"I do not foresee a significant change in the current freight environment as we move through the third quarter. However, there has been a slight improvement in volume trends,” said Henry Gerkens, president & CEO of Landstar System in the carrier’s second quarter earnings report.

“In addition, some of the very difficult revenue comparisons experienced during the first half of 2009 begin to ease toward the end of the 2009 third quarter and into the 2009 fourth quarter,” he noted. “I believe the worst is over.”

That being said, however, Gerkens stressed that there continues to be some level of uncertainty in the marketplace. He noted Landstar’s revenue continued to be negatively impacted by the severe recession in the domestic and global economies during the second quarter, with earnings shrinking to $17.9 million on revenues of $491.2 million, compared to $29.8 million in earnings on revenues of $697.7 million in the same period last year.

Full Story........

How Much More Capacity Needs to Exit the Trucking Industry?

Implications

The persistent slump in U.S. industrial freight demand continues to take its toll on all modes of transportation carriers. Despite double-digit percent capacity coming out of various modes, there continues to be too many trucks chasing too little freight. When will the correct equilibrium arrive that will allow carriers to return to profitability?

Analysis

The slump in U.S. freight demand has reached 34 months, according to my charts. It's the longest slump since trucking was deregulated in 1980, and really shows no signs of a turnaround yet.

Begun in August of 2006, the slump continues as many carriers are reporting first-quarter losses as they continue to "feel for the bottom, " as one carrier executive said.

This is despite much capacity already exiting all modes of transportation.

An analysis by respected freight analyst John G. Larkin of Stifel Nicolaus, Baltimore, shows exactly how much short-term capacity has exited the market place, either voluntarily or through bankruptcies and closings of smaller carriers, mostly in the TL sector.

In TL, Larkin estimates that 18 percent of short-term capacity has left the market, with about 15 percent long-term reduction necessary. On LTL, the short-term figure is 8 percent, with 6 percent long-term needed. In rail and barge, 15 percent short-term capacity has left, but no long-term drop is needed, according to Larkin.

Express has lost 12 percent short-term capacity, with 8 percent long-term needed. Ocean has lost 11 percent, but needs no long-term reduction in capacity, Larkin says.

The anecdotal evidence supports Larkin's figures. There are more than 735 ocean vessels "parked" off the Singapore Coast because of double-digit drops in east-bound container freight from Asia. Ocean freight rates have collapsed, and may not recover for years. Chinese exports dropped 22.6 percent in April while in the Philippines, that level nose-dived nearly 31 percent from year-ago levels.

The American Trucking Associations' most recent for-hire Truck Tonnage Index shows a startling drop in March, usually a month when freight volumes tend to show an uptick. This year, ATA's index shows, March volumes fell 12.2 percent compared to year-ago figures. That is its lowest level since March 2002.

Rail freight volumes were off 22 percent in March. Overall intermodal freight levels dropped 16.4 percent, although domestic intermodal growth was up 4.4 percent in that period.

Air freight demand has evaporated, hurting the fortunes of both FedEx Corp. and UPS, despite the exit of rival DHL from the U.S. domestic market place. Shippers who formerly demanded next-day air freight services are discovering that second- and third-day ground services are serving their needs just fine, thank you.

The wonder actually is that losses have not been worse in transportation. Except for troubled U.S. trucking giant YRC Worldwide, where losses are approaching $1.9 billion over the last two-plus years, other carriers' losses have been rather mild.

Of course, most of the rest of the trucking industry is quietly hoping YRC's lenders get tough and perhaps cause a bankruptcy proceeding. At $9.4 billion, YRC has nearly a 27 percent market share in the LTL sector. Ironically, that may just be about the correct amount of overcapacity in that sector.

Capacity rationalization still needed in trucking industry

Implications

This article, while sounding draconian, accurately reflects the trucking industry's excess capacity still chasing too little demand. So, what is the impact, now and in the future, between transportation suppliers and consumers?

Consider the following points: 1. With excess capacity still in the market, a majority of agreements between shippers and carriers are probably based solely on price (rates and discounts). 2. When the economy eventually rebounds, it will be leaner and more efficient across a breadth of industries. Accordingly, the surviving carriers will be those with streamlined linehaul operations, updated "back-office" and in-cab technology coordinating deliveries in a rationalized network minimizing the number of empty miles. 3. Lesson to be learned: Carriers -- improve/optimize now. Shippers --- develop your relationships now as price points will adjust upward once supply and demand are rebalanced.

Analysis

A contemporary example of the impact of the industry's capacity rationalization is the recent annnouncement by ABF to consolidate and realign its operations.

In a nutshell, they are seeking efficiencies and it's analogous to an airline improving yield management by allocating the right size aircraft on the right length flight to carry the maximum number of passengers per mile. In trucking, it's very similar; the more direct the route, with fully loaded trailers, the better. This simply means less handling (less labor cost & potential for damage) and greater density per mile traveled. All of this adds up to better efficiency, which will drive costs lower.

Only the fittest will survive in this industry over the next 2-3 years. Those carriers that emerge on the other side of this recession will then be positioned to provide shippers with efficient distribution networks. However, I suspect they will have long memories of which companies negotiated with them now only on price instead of developing strategic supplier relationships as part of building a robust supply chain for the future.