LTL recovery waits for Godot?
In mid-June, the CEO of the nation's largest less-than-truckload (LTL) carrier said prospects for a U.S. economic recovery in 2009 were dimming, effectively scuttling the trucker's hopes for a near-term firm-up in LTL revenue and pricing. Michael Smid, CEO of Yellow Transportation, told this magazine that Yellow's 2009 outlook didn't "assume a whole lot of help" from economic activity.
That warning was echoed on Oct. 2 by Con-way Inc., which reduced its earnings-per-share guidance for the second half of 2008 by 30 percent from prior estimates. Con-way cited weak volumes in September, traditionally the strongest month of the third quarter and the "hump month" linking the end of the summer doldrums to the fourth-quarter peak shipping season. President and CEO Douglas W. Stotlar said persistent economic weakness and severe September weather dramatically reduced demand. The news was one of the factors that caused the Dow Jones Transportation Average to tumble 8.7 percent in that day's trading. In the two weeks leading up to Oct. 3, the 20-stock index had fallen by 21 percent.
Con-way's announcement prompted analysts at JPMorgan Chase to downgrade their 2009 earnings estimates for virtually the entire transport sector. Ten days earlier, the firm had downgraded four LTLs—Con-way, YRC Worldwide (Yellow's parent), Old Dominion Freight Line, and Arkansas Best Corp. (parent of ABF Freight System). In each case, the investment firm cited surprisingly swift deterioration in demand and pricing patterns in July and August, as well as rising cost pressures. JPM analysts said they expected those conditions to continue for several quarters, and they do not see a broad-based LTL recovery until late 2009 or 2010.
Satish Jindel, president of Pittsburgh-based consulting firm SJ Associates, is more optimistic. He is holding to his long-standing forecast of a recovery in shipments and tonnage starting in the second quarter of next year, with pricing to firm up in response.
Historically, LTL recoveries have lagged behind those of the truckload sector, which accounts for the vast majority of intercity truck tonnage. The truckload category is now in the midst of a slow turnaround, driven in part by the large number of bankruptcies during 2008, which significantly reduced capacity and helped establish a floor for pricing.
