LTL capacity tightened up in third quarter, Old Dominion CEO says

The CEO of less-than-truckload (LTL) carrier Old Dominion Freight Line Inc. said today that the LTL industry is experiencing a tightening of capacity, which led to higher freight rates and a strong revenue outlook for his company, especially last month.

David S. Congdon, who is also vice chairman of the Thomasville, N.C.-based trucker, said Old Dominion and its peers are benefitting from a stronger U.S. economy, which helped drive demand and revenue. Congdon's comments about firming capacity echoes those made over the past few months by various executives in the much-larger truckload segment.

Congdon's remarks came as Old Dominion reported third-quarter results that were particularly impressive considering LTL carriers had to navigate through service disruptions and operational dislocations caused by Hurricanes Harvey and Irma. YRC Freight, an Old Dominion rival, warned last week that its third-quarter results would be adversely affected by the storms' impact on its network operations.

Old Dominion revenue grew 11.5 percent year-over-year, while daily tonnage gained 8.6 percent. Revenue per each 100 pounds shipped—known in the trade as "hundredweight"—rose 3.6 percent, a figure which included the impact of fuel surcharges. As it did in the second quarter, Old Dominion reported a 99 percent on time delivery rate and a cargo claims ratio—claims as a percentage of shipments—of 0.2 percent.

Old Dominion's operating ratio—the ratio of revenues to expenses—dropped to 81.2 percent in the quarter. This meant that for every dollar of revenue, it spent just 81.2 cents. The ratio stood at 82.4 percent in the fourth quarter. Old Dominion is gaining operating leverage through stronger freight density and yields on its lanes, according to Congdon.

The improved leverage means that Old Dominion need not resort to dramatic general rate increases to boost yields because the better density environment is doing the job for it, according to analysts. Old Dominion historically has come to market with lower tariff rate increases than its rivals. At the same time, it does an excellent job of avoiding marginally profitable freight as a way to fill trailers and take share, analysts have said.