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August 14 2023

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August 14, 2023 | Journal of Commerce 19 www.joc.com Special Report Guide to Trucking & Midyear Review "I believe this industry, speaking for LTL and truckload carriers, too, can be profitable and can sustain prof- itability," David Congdon, then-pres- ident and CEO of ODFL, said at the time. "It just takes disciplined man- agement to do it." That sounds much like today's LTL industry. The move to more disciplined management can be seen in LTL car- riers' operating ratios (ORs), which indicate profitability by showing operating expenses as a percentage of revenue. ODFL, for example, had an annual OR of 90.7% in 2010, leav- ing a profit margin of 9.3%. In 2022, ODFL's OR was 70.6%. Saia reported an OR of 83.1% in 2022, compared with 98.7% in 2010; ABF Freight System had an OR of 87.3% last year — and paid workers a profit-sharing bonus — compared with an OR of 103.8% in 2010, when the company operated at a loss. Carriers with an OR of 90% or higher are now the exception, rather than the rule. TForce Freight, for- merly UPS Freight, expects to post 92% OR in 2023, but that's still a significant improvement from 97.1% when it was acquired by TFI Interna- tional in 2021. For the most part, LTL carriers "know where they want to run their trucks and what it will cost them to run those trucks," Regan said. "That's not insignificant. Most shippers don't want to face that reality." Regan's comments may seem harsh, but they reflect longstanding shipper expectations of LTL carriers offering low rates to gain market share. But in reality, LTL carriers are not chasing market share as aggressively as they did in the 2000s, when Yellow acquired Roadway and USF Freight- ways. Yellow's revenue approached $10 billion in 2006. During the Great Recession in 2008–09, LTL competitors dis- counted customer rates by as much as 90% from base tariffs. That type of pricing is now long gone, replaced by strategies that emphasize profitable growth, rather than growth for the sake of gaining market share. "There are some people on the periphery who are more aggressive when it comes to pricing, but gen- erally all the large carriers are disci- plined," Christopher Jamroz, execu- tive chairman and CEO of long-haul "If you have a low-price competi- tor exit the market ... customers that have service expectations, naturally, I think would gravitate towards Saia," Holzgrefe explained. "For us, it doubles down on our responsibility to make sure that we're paid for that high level of service, capturing those charges. The customer gets a lot of value for that, so we've got to be very, very diligent." A profitable revival Thirteen years ago, the Journal of Commerce asked what a trucking renaissance would look like, com- pared with the much-heralded rail- road renaissance of the 2000s. Ten years ago, ODFL was one of the few LTL carriers that consistently priced shipments based on actual costs to achieve sustainable profits, even when the economy softened. Now, many LTL trucking compa- nies have adopted a similar, more disciplined approach to pricing that eschews the type of deep discounting that pushed some LTL players into the red in 2009. "We continue to highlight the importance of business mix and freight selectivity and closely moni- tor our revenue per shipment," Fritz Holzgrefe, president and CEO of Saia, told investment analysts in a July 28 second-quarter earnings call. Saia is focusing "on things that we can control" as the LTL sector adjusts to the "current, well-documented dis- ruption" caused by Yellow's unfolding collapse, he added. That includes charging higher prices for former customers of Yellow shipments shifting over to Saia. "The pricing model is now based on financial-driven parameters, rather than market-driven parameters."

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