LTL carriers point to lower tonnage in November

Some of the country’s largest part-truck hauliers are seeing demand continue to fall from recent highs.

The trend seems to have accelerated in November so far, following Q3 reports showing an annual decline in tonnage at most LTL yards through September and October.

“The last few weeks have been very, very smooth,” Forward Air (NASDAQ: FWRD) chairman and CEO Tom Schmitt told investors Tuesday at the Stephens Annual Investment Conference in Nashville, Tenn. “We see the smoothness that everyone sees. In fact, it has accelerated.”

Forward reported a 2% year-over-year increase in tonnage in the third quarter. After gaining 3% and 5% in the first two months of the period, volume turned slightly negative in September and fell 5% yoy in October.

Schmitt did not quantify the extent of the decline in November.

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

Hawkins said most of the weakness has come from its residential customers and the industry-related burden, 60% of Yellow’s revenue mix, has held up.

“Certainly we’ve seen a turning point, not just in yellow, but in the entire industry,” he said.

Yellow posted a 16% year-on-year decline in tonnage in the third quarter and its October freight metric declined 24% year-on-year. Yellow’s typical seasonality results in a 4% sequential decline in tonnage from the third to fourth quarters of each year. In October, the tonnage decreased by 7% compared to September.

Hawkins said the “easing” in demand trends, which accelerated in October, continued.

However, Yellow is undergoing a multi-phase operational change, consolidating its four separate LTL businesses under one roof. The plan calls for the closure of a total of 28 (6% of the total number of doors) of its 309 terminals. The goal is to eliminate redundancies across the network by reducing the number of overlapping service centers, which has resulted in multiple drivers from different brands driving to the same customer location every day.

As part of the review, the carrier has removed low-rate freight from the network and installed what it calls “deliberate shipment shifting,” where new freight rates are set and shippers can accept or abandon them. After six quarters of the exercise, Yellow has completed the program selection. He expects to reap the benefits of the measures, including reduced transit miles, improved occupancy and improved profit margins.

The comments come just days after FedEx Freight (NYSE: FDX), the country’s largest LTL, said it would begin laying off drivers in December due to slowing demand.

Hawkins said Yellow’s unionized workforce structure allows it to align headcount with freight volumes at the plant level.

“[Yellow ha podido] Leveraging contract terminations to adjust our available hours to match daily workloads,” Hawkins explained. “In the short term, I’m thinking about the possibility of managing that tightly.”

He noted that the winter months are usually the slowest for airlines, but was hoping for a “spring recovery” in demand.

“We saw that the pullback was pretty strong and quick… but I think LTL is in a good position to protect prices and price stability,” Hawkins said.

Yellow applied a 5.9% GRI to rate codes in early October.

Schmitt also said Forward will apply a GRI similar to the 7.9% increase applied last year. Technology and real estate investments as well as cost pressure made the increase necessary, said Schmitt.

He took the opportunity to reiterate the company’s expectation for rising earnings in 2023. Forward expects earnings per share of at least $7.51 in 2022, which would be more than $3 per share higher than last year.

He said more in-person events and the company’s efforts to sell services directly to small and medium-sized shippers, bypassing carriers, are some of the catalysts. In terms of cost, Forward uses less third-party capacity, which is more expensive than using its roster of dedicated independent contractors.

Schmitt warned that lower fuel surcharge earnings (50 cents) and further macroeconomic deterioration (50 cents) could hurt current expectations by $1/EPS.

“We could face a weak economy in the next few quarters,” Schmitt said.

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