LTL carriers still locked in rate battle
Despite problems with excess capacity, several large players have maintained aggressive pricing stance.
When FedEx Corp. released its fiscal second-quarter results Dec. 17, investors focused on numbers that were as good as, if not better than, what the company had forecast earlier in the month. They also drew a bead on FedEx's conservative fiscal third-quarter guidance, which was well below Wall Street's consensus. That news drove FedEx's stock down more than $5 a share by the close of trading that day.
But the results coming from the company's less-than-truckload (LTL) unit, FedEx Freight, may have a much bigger impact on who moves freight and at what price during 2010.
Year over year, FedEx Freight's volumes rose by 3 percent. During the same period, however, yields declined by 12 percent. The rise in volumes and decline in yields indicate that FedEx is aggressively pricing its product in a bid to force rationalization of capacity in an LTL market plagued by continued weak demand and excess cargo space. In so doing, the company is looking to build what is known as "network density," the key to any successful transportation strategy. It may also be looking to take market share from YRC Worldwide Inc. and make life even more difficult for the struggling trucker.
FedEx Freight isn't the only carrier with a take-no-prisoners pricing posture. Con-way Inc. is following a similar tack, according to Charles W. Clowdis Jr., a long-time trucking executive who is now managing director, North America for consultancy IHS Global Insight's global trade and transport division.
By contrast, Old Dominion, Estes Truck Lines, Averitt Express, and AAA Cooper have been more conservative in their pricing, Clowdis says. He says FedEx and Con-way's approach may be driven by the unique imperatives that come with being publicly traded companies.
FedEx Freight officials were unavailable for comment. The unit reported nearly $1.07 billion in revenue in its fiscal third quarter, accounting for roughly 12 percent of FedEx's total revenue of nearly $8.6 billion.
Separately, FedEx said it would raise the list rates for its FedEx Ground and FedEx Home Delivery services by an average of 4.9 percent, effective Jan. 4.
FedEx previously announced it would increase shipping rates for its FedEx Express air unit by an average of 5.9 percent for U.S. domestic and U.S. export services, also effective Jan. 4. The FedEx Express rate increase will be partially offset by adjusting the per-gallon fuel price at which the fuel surcharge begins; the move effectively reduces the fuel surcharge by 2 percentage points, FedEx said.
About the Author
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
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