Skip to Content
Stock Strategist Industry Reports

A Smoother Road for Less-Than-Truckload?

Industry pricing is on the mend.

Mentioned: , ,

The recent freight recession decimated the profitability of most less-than-truckload (LTL) carriers, primarily because the industry is marked by asset intensity and minimal switching costs--factors that drive our no-moat ratings for all pure-play LTL stocks in our coverage universe. Profitability is thus quite cyclical with limited protection from the competitive landscape, particularly during periods of weak freight demand. Consequently, throughout 2009 as freight volume tumbled, numerous struggling carriers on the brink of collapse slashed rates to unsustainable levels in a desperate attempt to grab volume and stay afloat. Nonetheless, industry pricing (yield) reached a key inflection point in the latter half of 2010 as capacity utilization improved. Since then, carriers' yield gains have largely continued. Although year-over-year growth comparisons become a bit more difficult in the second half of 2011, we expect favorable pricing conditions to remain a tailwind. In fact, pricing execution has become the focal point for most LTL carriers as they endeavor to recapture normal operating margins.

The chart below depicts LTL industry yield trends over the past few years. Excluding the recent, rapid rise in fuel surcharges, we estimate base rates increased 3%-4% year over year on average in fourth quarter 2010 and first quarter 2011. In general, recovering freight demand and the return of rational rate setting among the industry leaders have supported the pricing improvement. More specifically, rising volume has consumed excess capacity, enabling carriers to launch aggressive initiatives aimed at shoring up historically low yields. These efforts have been particularly focused on underpriced contractual business, and negotiations have met with success.  Con-way (CNW),  Arkansas Best (ABFS), and  Old Dominion (ODFL), for example, all generated mid-single-digit rate increases on average in first-quarter contract negotiations. Moreover, most of the major LTL carriers implemented two general rate increases (each around 6%) during 2010. Encouragingly, a significant portion of these GRIs appears to be sticking.

Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.