Higher costs quietly catching up to LTL carriers, Old Dominion executive says

Few motor carriers have a better handle on their costs than less-than-truckload (LTL) carrier Old Dominion Freight Line Inc. So when its vice president of pricing explains that its decision yesterday to hike tariff rates, on average, by 4.9 percent was as much of a cost-recovery effort as anything else, it may resonate with the $35-billion-a-year LTL industry.

All rate increases are, to some degree, cost-recovery efforts. And Thomasville, N.C.-based Old Dominion, which has arguably been the nation's most successful trucker for the past decade, is careful to emphasize that pricing is a strategic undertaking, not a tactical one. Yet it was clear from Todd Polen's comments that the broad array of costs confronting all carriers these days is having a profound impact on the LTL sector. While much of the industry focuses on continued sluggish demand, the challenges on the cost side have been quietly escalating.

"I think the 'barrier to entry' has become extremely high in LTL. This is why you don't see new players in the LTL space," Polen said in an e-mail late yesterday. "Even finding real estate in some markets can be a challenge."

Polen said Old Dominion's philosophy behind its rate increases has shifted to position the hikes as recovery mechanisms of costs that he said have dramatically increased over the past five years. Polen stressed, however, that Old Dominion's pricing would not take on "Machiavellian" overtones, where the long-term end may justify the short-term means.

"Pricing is not 'tactical' in our view of the customer," he said in the e-mail. "Tactical implies lots of words like 'deceitful,' 'unfair'—and once you treat someone unfairly, the bridge has been burned."

Old Dominion's statement seemed crafted to emphasize the escalating expenses it faces, and how it would have trouble executing in such an operating climate without a rate hike. The rate increase is "intended to partially offset the rising costs of new equipment, real estate, technology investments, and competitive employee wage and benefit packages," Polen said in the statement.

He added that "in order to satisfy our customers' expectations and deliver on the promises we have made, we must continue to enhance our high-quality service network and systems."