LTL carriers point to shrinking tonnage in November

Some of the nation’s largest general cargo carriers are seeing demand continue to decline from recently recorded all-time highs.

The trend seems to have accelerated in November so far following third quarter reports which showed a y/y drop in tonnage in most LTL stores in September and October.

“The last few weeks have been very, very weak,” Forward Air (NASDAQ: FWRD) chairman, president and CEO Tom Schmitt told investors Tuesday at the Stephens Annual Investment Conference in Nashville, Tenn. “We see the softness that everyone else sees. It has actually 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 was down 5% year-on-year 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 came from its retail customers and that industrial-related freight, which accounts for 60% of Yellow’s revenue mix, has remained steady.

“We’ve certainly seen a turning point, not just at Yellow, but across the industry,” he said.

Yellow reported a 16% year-on-year decline in tonnage in the third quarter and the freight metric declined 24% year-on-year in October. Typical yellow 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 “weakening” in demand trends, which accelerated in October, has continued.

However, Yellow is undergoing a multi-phase operational change, consolidating its four separate LTL businesses under one roof. The plan calls for a total of 28 (6% of all doors) of its 309 terminals to be closed. 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 overhaul, the carrier weeded out undervalued freight from the network and installed what it called “deliberate shipment shifting,” where new freight rates were set and shippers could either accept them or walk. After six quarters in practice, yellow has finished sorting out shipments. It expects to reap the benefits of the measures, including reduced transit kilometers, improved utilization and better profit margins.

The comments come just days after FedEx Freight (NYSE: FDX), the country’s largest LTL, announced it would begin furloughing 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 has been able to] use contractual layoffs to adjust our available hours to the workload we are presented with on a daily basis,” explained Hawkins. “In the short term, I’m thinking about the possibility of managing that tightly.”

He noted that the winter months are usually the leanest for transport companies but said he was hoping for a “spring surge” in demand.

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

Yellow introduced a 5.9% General Rate Increase (GRI) on rate codes in early October.

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

He took the opportunity to reiterate the company’s expectation of growing earnings in 2023. Forward forecasts earnings per share of at least $7.51 in 2022, which would represent an increase of more than $3 per share year over 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. On the cost side, 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 deterioration in macroeconomics (50 cents) could result in earnings per share falling $1 below current expectations.

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

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