LTL carriers point to shrinking tonnage in November

Some of the nation’s largest less-than-truckload carriers are seeing demand continue to retreat from the all-time highs recently established. 

Following third-quarter reports, which showed year-over-year (y/y) tonnage declines at most LTL shops during September and October, the trend appears to have hastened so far in November.

“The last few weeks were very, very soft,” Forward Air (NASDAQ: FWRD) Chairman, President and CEO Tom Schmitt told investors Tuesday at Stephens Annual Investment Conference in Nashville, Tennessee. “We see the softness everybody else is seeing. It actually has accelerated.”

Forward reported a y/y tonnage increase of 2% during the third quarter. After logging increases of 3% and 5% in the first two months of the period, volume turned slightly negative in September and was down 5% y/y in October.

Schmitt didn’t quantify the magnitude of the November decline.

“Let’s just talk about the elephant in the room for a moment — our October tonnage,” Yellow (NASDAQ: YELL) CEO Darren Hawkins stated Wednesday.

Hawkins said most of the weakness has come from its retail customers and that industrial-related freight, 60% of Yellow’s revenue mix, has remained firm.

“We certainly saw a tipping point, not only at Yellow but in the industry as a whole,” he said.

Yellow reported a 16% y/y decline in tonnage during the third quarter and the freight metric was down 24% y/y in October. Typical seasonality for Yellow yields a 4% sequential decline in tonnage from the third to fourth quarters each year. In October, tonnage was down 7% from September.

Hawkins said the “slackening” in demand trends that accelerated during October has continued.   

However, Yellow is engaged in a multiphased change of operations, consolidating its four separate LTL companies under one roof. The plan calls for a total of 28 (6% of total doors) of its 309 terminals to be shuttered. The goal is to remove redundancy throughout the network by trimming the number of overlapping service centers, which have resulted in multiple drivers from the different brands calling on the same customer site each day.  

As part of the overhaul, the carrier culled underpriced freight from the network, installing what it calls an “intentional shipment relocation” where new freight rates were set and shippers could either accept them or walk. Six quarters into the practice, Yellow is done culling shipments. It expects to begin to reap the benefits of the actions, which will include reduced transit miles, improved utilization and better margins.

The remarks come just a couple of days after FedEx Freight (NYSE: FDX), the nation’s largest LTL, said it would begin furloughing drivers in December due to slowing demand.

Hawkins said Yellow’s unionized employee structure allows it to match head count to freight volumes at the facility level.

“[Yellow has been able to] utilize contractual layoffs to match our hours available to the workload that’s presented to us on a daily basis,” Hawkins explained. “For the short term, I think about the opportunity of managing that closely.”

He noted that the winter months are typically the leanest for carriers but said he was hopeful for a “spring lift” in demand.

“We’ve seen the pullback come pretty hard and pretty swift … but I do think that LTL is in a good position to protect pricing and stability in pricing,” Hawkins said.

Yellow implemented a 5.9% general rate increase (GRI) on tariff codes at the beginning of October.

Schmitt too said Forward will be installing a GRI similar to the 7.9% hike taken last year. Technology and real estate investments as well as cost pressures are necessitating the increase, Schmitt said.

He took the opportunity to reiterate the company’s expectation to grow earnings in 2023. Forward is forecasting earnings per share of at least $7.51 in 2022, which would be a more than $3 per-share increase y/y.

He said more in-person events and the company’s efforts to sell services directly to small and midsize shippers, bypassing forwarders, are some of the catalysts. On the cost side, Forward is using less third-party capacity, which is more costly than utilizing its roster of dedicated independent contractors.  

Schmitt cautioned that lower fuel surcharge revenue (50 cents) and further deterioration in the macro economy (50 cents) could result in a $1 EPS hit to current expectations.

“We might be facing a slow economy for the next several quarters,” Schmitt said.

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