LTL Sector Enjoys Fruitful 2017

Truckload, 3PLs Try to Regain Footing in Second Half of Year
Stifel John Larkin
Stifel analyst Larkin (Roger W. Gilroy/Ttransport Topics)

Indications are that the truckload market is bouncing back from some rough conditions earlier this year, according to industry analysts at Stifel, Nicolaus & Co.

Logistics providers with a lot of contract business, such as C.H. Robinson Worldwide, have struggled this year, but less-than-truckload carriers have prospered in 2017, according to the analysts, who hosted a conference call Sept. 7 to discuss the marketplace. C.H. Robinson ranks No. 5 on the Transport Topics Top 50 list of the largest North American logistics companies.

Truckload contract rates recently have crept up again after flat or slightly lower prices earlier last year, Stifel analyst John Larkin said. The spot market heated up about 14 months ago, but the lag until contract rates responded took longer than anticipated. Historically, industry analysts peg the interval at about six months.

Larkin said strong trucking demand after hurricanes Harvey and Irma gave the truckload market a bump in advance of a law that will mandate the use of electronic logging devices in most trucks. That mandate goes into effect Dec. 18.

“It will reduce capacity in the industry somewhere between 2% and 5%, if not more. A lot of it depends on the extent to which the rule is enforced by the police, the insurance companies and shippers or brokers,” he said.

The upward trajectory in the truckload sector likely started this summer after a strong peak season — which lasted through July 4 — and didn’t subside as much as in previous years, according to fleets and analysts.

“July and August dry-van volumes are significantly above normal seasonal history trends. We’re seeing many new opportunities at higher rate levels,” one fleet executive anonymously told Morgan Stanley analyst Ravi Shanker. “This all points to an increase in demand and a reduction in capacity at the same time.”

A shipper said, “Our carrier base is starting to talk about rate increases and tightening of supply to a much greater … respect than the usual ‘the market will change soon’ that we have been hearing the last couple years.”

Freight brokers exposed to contract business also produced lackluster results last quarter, but they also likely will benefit from a tightening market. C.H. Robinson reported that second-quarter margins slipped more than 250 basis points year-over-year.

“We think now that the inflection point has been reached on contract pricing — that a lot of that pressure will begin to lessen here in the third quarter, the fourth quarter and [the] early part of 2018,” Larkin said.

He also believes that C.H. Robinson, Coyote Logistics and No. 27 Total Quality Logistics will successfully fend off an onslaught from Uber and venture capitalists funding Uber-like startups such as uShip and Cargo Chief. The three companies, which rank Nos. 1, 2 and 5 on the Transport Topics list of top freight brokerage firms, already have their own apps with load-matching capabilities.

In the LTL sector, Stifel analyst Dave Ross reported that tonnage per day was up 4% year-over-year in the second quarter when combining all the publicly traded carriers. Weight per shipment was slightly up in the first two quarters, which Ross attributed to the bounce-back year in the Institute for Supply Chain Management’s manufacturing index in 2017. Less-than-truckload also may benefit further as e-commerce grabs a larger slice of the retail marketplace.

“E-commerce growth on the middle mile is really going to drive LTL volumes over the next several years as well, as supply chains become shorter, turn times are quicker and there’s a drive for small, but more frequent shipments,” Ross said.

In mid-quarter updates, Old Dominion Freight Line Inc. and Saia Inc. reported year-over-year growth in July and August in tonnage and volume, but ArcBest Corp. announced mixed results during the same period. However, Ross noted that the results only included the initial financial impact from Hurricane Harvey and didn’t account for Hurricane Irma. Saia’s core one-day service network includes Florida and most of Georgia, which bore the brunt of the hurricane.

Old Dominion Freight Line ranks No. 11 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. ArcBest is No. 12, and Saia is No. 28.