Truckers report demand declines, capacity cutbacks
Carriers, 3PLs continue to take trucking capacity out of the market
By Dave Hannon -- Purchasing, 4/22/2009 2:59:00 PM
It’s not a big surprise, but most trucking firms that have released first-quarter earnings continue to report lower freight volumes and plunging rates as demand slumps and freight buyers continue to look to reduce costs. Freight buyers, however, may be more concerned with the carriers’ efforts to pull capacity off the roads—a strategy that may impact shippers when demand picks up.
The first-quarter trend “is much weaker than the 18% decline we expected,” based upon recent data from other trucking companies, J.P. Morgan analyst Thomas Wadewitz said in a research note.
Less-than-truckload carrier ABF Freight System reported a 16% decline in tonnage per-day vs. the first quarter of 2008 and cut back its capacity by cutting 326 tractors and 448 trailers from its fleet. LTL giant YRC Worldwide told an analyst call earlier this month that its volumes slid 29% in its national network in the first quarter.
LTL carrier Old Dominion Freight Line saw a 12.4% decline in tonnage, but took a hard line on pricing at the expense of volume. "Although our commitment to pricing discipline contributed to the decline in tonnage during the first quarter, we believe this strategy will contribute to the long-term success of the company and will also be validated by our operating performance relative to the industry," said company executive chairman Earl Congdon in the firm's earnings. “Industry conditions during the first quarter of 2009 continued to reflect the effects of the recessionary economic environment on freight demand, and pricing pressure was as severe as we have ever experienced."
On the truckload side, Werner Enterprises reduced its fleet by 4% in the first quarter, but said the decline in freight demand outpaced its consolidation efforts. “The already soft freight market weakened further during first quarter 2009,” Werner said in its first-quarter earnings report. “The recessionary economy combined with many shippers aggressively reducing their inventories caused a severe slowdown in freight shipments.”
Heartland Express said in its earnings statement that there “continues to be excess capacity in the market and this combined with declines in overall freight demand continued to place extreme pressure on freight rates throughout the quarter. Further, the company has not seen any strong indicators of improvements in the demand for freight services that would affect our levels of business in the near future.”
Third-party logistics providers and brokers have also been impacted by the decline in trucking demand. In a recent call hosted by Stifel, Nicolaus & Co, trucking industry economist Noël Perry of FTR Associates said truck brokers are suffering the worst volume decline of any recent memory because the lack of overflow freight from the asset-based carriers. Perry suggested that the next freight market upturn will be interesting to watch because so much capacity may have exited the industry that it will be difficult for brokers to access sufficient quantities of capacity. It is conceivable that the brokers may have to help struggling capacity providers with equipment acquisition and financing in order to source adequate capacity.
CH Robinson said its truckload volumes decreased approximately 10% in the first quarter and LTL volumes dropped 5%. And Landstar Systems said in a recent earnings call that “load volume declines stabilized towards the back half of the (first) quarter but pricing deteriorated in the latter half of the quarter because of excess capacity and a very weak demand. Increasingly, customers are looking for price concessions from their transportation providers.”
And JB Hunt said it “continued to right-size our tractor fleet according to customer demand, which resulted in a reduction of 948 tractors, or 23%, compared with the tractor count at the end of the first quarter 2008.”
The decline in trucking volumes and rates led paper products maker Weyerhaeuser to shut down one of its trucking units in the Northwest, which had a fleet of 42 trucks. “Part of it is because of the economy and part of it is because trucking is not a core business for us,” said company spokesman Greg Miller in arecent news story. “Our business is lumber and that’s what we have to devote our resources to.”
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