Old Dominion head says LTL pricing remained stable in quarter, refuting claims of rate wars

The CEO of less-than-truckload (LTL) carrier Old Dominion Freight Line Inc. said today that LTL pricing "remained stable" in the third quarter, countering comments by other carriers of aggressive pricing in the quarter.

The comments from David S. Congdon, who is also Thomasville, N.C.-based Old Dominion's vice chairman, came as the carrier, considered by many to be the top-performing trucker in the country, posted a 4.8-percent increase in third-quarter revenue and an 8.3-percent increase in net income over the third quarter of 2014. Shipment count rose 11.7 percent, while tonnage rose 6 percent. Revenue per each hundred pounds of weight shipped, considered the key metric of the effectiveness of a carrier's pricing strategy, rose 5.2 percent year-over-year, excluding the impact of fuel surcharges. Operating ratio, the ratio of revenues to expenses and an important measure of carrier's operating efficiency, dropped to 82 percent from 83.1 percent in the 2014 quarter, a significant improvement.

Old Dominion's third-quarter volumes came in as expected, though analysts said that October's numbers were slightly below seasonal norms. In the statement accompanying the results, Congdon acknowledged that there was some "softening in the economic environment" during the quarter. He didn't elaborate.

In the past few days, Saia Inc. and Roadrunner Transportation Systems Inc., both of whom have significant LTL operations, said the LTL sector was under some pricing pressure in the third quarter. Those pressures, which are due in part to a slowing industrial end market that has hit demand, were partly responsible for subpar numbers reported by the carriers earlier this week.

Not everyone is seeing that. In a note late yesterday, David G. Ross, transport analyst for investment firm Stifel, said that third-quarter "core" pricing—adjusted for changes in shipment mix and fuel surcharges—was up between 3 and 4 percent over the same period in 2014, and that second-quarter core pricing was up 4 percent year-over-year, however. In addition, several LTL carriers announced this fall their second rate increases in a year on noncontractual traffic. "This does not signal weakness in pricing, in our opinion, and we continue to believe managements will remain more disciplined on pricing than in past cycles, although the weaker the volumes, the more this resolve will be tested," Ross said in the note.

LTL pricing has remained firm for about four years, following a disastrous period of rate cutting between 2007 and 2009. The rate cutting was driven both by a grab for market share in the face of declining volumes during and after the recession and an ill-fated effort to drive YRC Worldwide Inc., which was then the market leader but was teetering on the verge of bankruptcy, out of business. A return to stable pricing, combined with a pickup in demand and better rationalization of truck capacity, has enabled carriers to rebuild their margins and increase revenue. Old Dominion was one of the few carriers that stayed out of the rate-cutting game, a strategy that allowed the company to maintain solid margins during the downturn and positioned it for strong gains since then.

A high-level LTL executive, who asked not to be identified, said that pricing still remains firm, though the executive added that FedEx Freight, the largest LTL carrier, has been cutting prices in a selective manner. The executive said Roadrunner aggressively cut prices in the third quarter, only to find that others would not join it.

In a statement, Michele Ehrhart, a spokeswoman for Memphis-based FedEx Corp.'s LTL unit, said "the LTL-industry pricing environment remains rational. LTL capacity is relatively tight and carriers are focused on improving to healthy margins."

The executive said that many carriers are worried that XPO Logistics Inc., the Greenwich, Conn.-based transport and logistics firm that is about to close on its $3-billion acquisition of rival Con-way Inc., may begin to aggressively cut rates charged by Con-way's LTL unit, Con-way Freight, the industry's second-largest carrier, as a way to gain market share. Bradley S. Jacobs, XPO's chairman and CEO, did not comment.