Less Than Truckload

A Smoother Road for Less-Than-Truckload?

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 ,   Arkansas Best , and   Old Dominion , 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.

Looking forward, we expect core LTL-industry pricing to expand 3%-5% on average in 2011 followed by low-single-digit growth in 2012. Modest volume increases combined with firming industry capacity and rational pricing among the large carriers should support decent pricing power. In terms of capacity, we expect supply and demand to remain roughly balanced in LTL shipping, with a slight tilt in favor of supply as most carriers are electing to maintain the size of their active fleets (equipment replacement is more of a priority following cutbacks in capital expenditures during the downturn). Furthermore, shippers have become much more cognizant of general trucking-industry capacity reductions, as well as the marginal profitability of many carriers. Shippers are thus more amenable to rate increases in the interest of getting freight moved on time. Some carriers, like Con-way and   FedEx Freight , are also aggressively managing business mix by turning a cold shoulder to freight that does not optimize network density or yield. This implies that shippers seeking premium service are finding fewer options if their freight is not priced to the liking of carriers.

Port Jersey Logistics to Launch LTL Freight Consolidation / Pool ...

Http://www.healthcarepackaging.com/archives/2011/06/port_jersey_logistics_to_launc.php
Port Jersey Logistics to Launch LTL Freight Consolidation / Pool Distribution to New England Posted by: Healthcare Packaging on June 20, 2011

Port Jersey Logistics , a leading public warehousing and distribution company, is launching a less-than-truckload (LTL) freight consolidation/pool distribution program to New England through their Continental Logistics division.

Starting in early July, the company will offer scheduled departures from its Tyler Distribution warehouse in New Jersey to all points in New England. The new service offers more efficiency and less cost for consignees, whose orders can travel north together before being separated and delivered independently. Additional regions will be added throughout the year, with a goal of providing a national consolidation program by early 2012. Freight consolidation - which combines separate LTL shipment orders with similar routes - can be a highly effective means of managing supply chains. Without it, smaller deliveries can add up to higher per-pound costs and, often, additional handling fees. As most companies do not have the resources or the customer base to allow for an effective consolidation solution, the new service makes Port Jersey Logistics stand out among competitors.

Pool distribution is the delivery of orders to numerous destination points within a particular geographic area. Consolidated orders are shipped together to a regional terminal, where the shipment - known as a linehaul - is separated, resorted based on like destinations, and reloaded onto local delivery trucks.

Pool distribution can save customers significant cost compared to direct LTL shipping. Other benefits include reduced transit times, reduced claim potential due to less overall handling, and maintained shipment and temperature integrity.

“Freight consolidation and pool distribution is a highly attractive service for customers because, simply put, streamlined shipping saves money,” said Robert Russo, President of Port Jersey Logistics. “However, to make this shipping method economically viable to offer, a company must have regular LTL deliveries to a particular region from a steady flow of customers. That said, we view this new service as testament to the health of Port Jersey Logistics. This is a product of our strength as a company.”

Starting in early July, the company will offer scheduled departures from its Tyler Distribution warehouse in New Jersey to all points in New England. The new service offers more efficiency and less cost for consignees, whose orders can travel north together before being separated and delivered independently. Additional regions will be added throughout the year, with a goal of providing a national consolidation program by early 2012. Freight consolidation - which combines separate LTL shipment orders with similar routes - can be a highly effective means of managing supply chains. Without it, smaller deliveries can add up to higher per-pound costs and, often, additional handling fees. As most companies do not have the resources or the customer base to allow for an effective consolidation solution, the new service makes Port Jersey Logistics stand out among competitors.

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