Carriers revamp networks amid continuing trucking demand slump
By David Hannon -- Purchasing, 12/11/2008 2:00:00 AM
Call it a sign of the times: Con-way Freight, the Ann Arbor, Mich.-based less-than-truckload division of Con-way, announced in November it will close 40 service centers around the country as part of a network improvement initiative. But most market watchers say this and other similar moves are an indication that trucking firms are not expecting demand to pick up any time soon.
In a statement from Con-way on the network redesign, John Labrie, president of Con-way Freight, said, "We are simply balancing business volumes across a more strategic network footprint. It makes better use of available capacity and improves service with more efficient operations."
But the LTL market reality came through loud and clear on Con-way most recent earnings call, where officials said in the LTL segment, "Price competition increased as the quarter progressed, and when yields are adjusted for a longer average length of haul and some shift in the mix of freight, pricing was clearly weaker than at the same point last year."
In fact, Con-way officials said that according to its records "we could not find any time in Con-way's 25 year history where September's tonnage per day was actually below that level in August" as it was this year.
And Con-way's announcement is only the latest in a continuing flow of signs that indicate demand for trucking is on a steep decline, pushing carriers to get even more aggressive on pricing in an effort to secure market share. A recent report from Goldman Sachs analysts on the trucking market says that "pricing remains competitive as certain carriers are vying to gain share" in the slowing U.S. freight market. Goldman Sachs analysts also point out that as the fragmented trucking market continues to report slowing volumes, larger competitors "will price aggressively to gain share."
Credit Suisse analyst Christopher J. Ceraso told the Associated Press that that freight demand should continue to weaken through 2009 and possibly fall for five more quarters. "This does not bode well for the less-than-truckload group as a whole," he said.
A week before Con-way's announcement, LTL carrier YRC announced it would lay off up to 3,750 workers. In its third-quarter report, YRC's CEO Bill Zollars said "Throughout the third quarter, the operating environment progressively weakened resulting in lower than expected volumes and more competitive pricing."
Third-quarter malaise was a common issue among LTL carriers. ABF said in its earnings statement that in the first half of the year, its freight tonnage seemed to stabilize compared to 2007, but "during this year's third quarter, tonnage levels decelerated for each month of the quarter as the freight environment weakened further."
LTL carrier Saia said its third-quarter LTL shipments were down 2.3% and that "Third-quarter revenue was negatively impacted by a weak economy, the competitive pricing environment."
And the outlook is for even slower demand and plunging LTL rates. David Ross, an analyst at investment firm Stifel Nicolaus, said LTL carriers expect the fourth quarter should be worse than the third. And Earl Congdon, executive chairman of LTL carrier Old Dominion Freight Lines, said in a recent report that it believes the competitive pricing environment may intensify in the fourth quarter.
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