August 23, 2011
Move significantly undercuts rivals' price hikes.
Old Dominion Freight Line said late Monday it will raise its rates by 4.9 percent on non-contract traffic effective Sept. 6, a move that dramatically undercuts the rate increases already put into effect by its key less-than-truckload (LTL) carrier rivals.
In a statement, Thomasville, N.C.-based Old Dominion said that unlike other LTL carriers that have imposed across-the-board rate increases, its increases will be based on a shipment's length of haul. As a result, some shipments may be subject to higher increases than others, though the increases are expected to average out at 4.9 percent, the company said.
The Old Dominion move, which has occurred a bit later in the pricing cycle than similar actions by its rivals, is likely to put pressure on competitors that have already committed to much larger increases. UPS Freight, YRC Worldwide Inc., ABF Freight System Inc., and Con-way Freight, all of whom compete with Old Dominion, have increased their non-contract rates by 6.9 percent. FedEx Freight, the LTL unit of FedEx Corp. and the nation's leading LTL carrier by sales, raised its non-contract rates by 6.75 percent.
Old Dominion's actions are a turnabout of sorts from the strategy it employed through much of the 2006–2010 freight recession. The carrier, for the most part, chose not to become embroiled in the fierce rate wars among other LTL carriers in a bid to gain market share and to drive YRC, then the market leader, out of business through underpricing.
By contrast, Old Dominion chose to walk away from unprofitable and marginally profitable freight, an approach that helped it maintain strong yields and profits as its rivals struggled. Today, Old Dominion is considered by analysts like David G. Ross at Stifel, Nicolaus & Co. to be the best LTL carrier currently in business.
In recent quarters, LTL carrier yields have strengthened as carriers have become more selective about the freight they'll accept and as rate increases have gained traction with small to mid-sized shippers that often lack the volumes to negotiate lower contract rates. In a broadly improving pricing environment, Old Dominion may feel more comfortable coming to market with lower rates than it would have a year or two ago, when rates were weak and discounting was prevalent.
In an e-mail, Ross said that since Old Dominion didn't cut rates as much as its competitors did, it now needs to boost them somewhat to achieve specific levels of profitability. The increase should allow Old Dominion "to attract new customers and take market share," Ross said.
A recent survey of shippers by the New York City investment firm Wolfe Trahan & Co. showed that 35 percent of respondents do not expect any impact from the general rate increases. Most of those respondents are larger shippers that utilize contracts and thus are not affected by general rate fluctuations. About 9 percent of the shippers surveyed said they expect to pay 6.9-percent increases, while 30 percent said they expect to pay increases ranging from 3.5 percent to 6.0 percent.