Executive Briefings

Over-Capacity in US Road Freight Sector Creates Winners and Losers

Much of the US land freight transport sector remains mired in the mud of falling demand and financial difficulties. However, not everyone is pessimistic--some key players actually look set to benefit from the turmoil.

On the downside, the troubles at road freight and logistics group YRC Worldwide continue (Ti Logistics Briefing, News, April 27), with revenue for the first quarter of this year (to end-March) falling 32% compared with the same three months of 2008 to $1.5bn. Losses increased more than fivefold to $257m. Volume fell 29%, with YRC possibly losing market share. In addition, costs were incurred through restructuring, not least the redundancy of 3,000 workers.

Con-way Inc is in much better long-term shape, yet its losses over the same quarter were also substantial, with revenue down 19.9% compared with the same period last year at $963m. Income fell by over $60m into an underlying loss before the write-of of goodwill of $15.5m. Again, that was caused by lower volumes, although Con-way's senior management expressed the view that the company was gaining market share, putting a floor under profitability.

Old Dominion Freight Line experienced similar poor market conditions, yet its volume falls were around half that of YRC. Revenue was down 20% whilst income was down 40% on a year-on-year basis but the company was still profitable.

The continuing fall in volumes has also spread to the previously-strong rail sector where Burlington Northern Santa Fe saw revenue fall by 20% on the back of a 14% decrease in volume, complicated by a change in fuel surcharges. Profit fell by 36%, yet the company remained in the black, underpinned by its coal traffic and the ability to drive down costs.

The clear message from the latest series of quarterly results just published by US land transport companies was, in the words of Douglas Stotlar, CEO of Con-Way, that "the freight markets continued to suffer from excess capacity and intense price competition". That might be qualified to say that the road freight sector is suffering from over-capacity. The logical outcome will be industry consolidation, presumably through the loss of one of the larger companies. Many are suggesting that will be YRC.

However, it is worth noting that some LSPs (logistics service providers) benefit from this situation. C. H. Robinson Worldwide, the non asset-based road freight provider, managed to limit its decline in operating income to 0.9%, on a fall in revenue of 15%, including fuel surcharges. The underlying margin jumped from 18.2% to 22.6%, illustrating the company's ability to press down on costs in such an over-supplied market whilst maintaining rates to customers. In theory, C.H Robinson will suffer as the supply of road freight tightens; however, such a tightening might be a long time in coming.
Transport Intelligence

Much of the US land freight transport sector remains mired in the mud of falling demand and financial difficulties. However, not everyone is pessimistic--some key players actually look set to benefit from the turmoil.

On the downside, the troubles at road freight and logistics group YRC Worldwide continue (Ti Logistics Briefing, News, April 27), with revenue for the first quarter of this year (to end-March) falling 32% compared with the same three months of 2008 to $1.5bn. Losses increased more than fivefold to $257m. Volume fell 29%, with YRC possibly losing market share. In addition, costs were incurred through restructuring, not least the redundancy of 3,000 workers.

Con-way Inc is in much better long-term shape, yet its losses over the same quarter were also substantial, with revenue down 19.9% compared with the same period last year at $963m. Income fell by over $60m into an underlying loss before the write-of of goodwill of $15.5m. Again, that was caused by lower volumes, although Con-way's senior management expressed the view that the company was gaining market share, putting a floor under profitability.

Old Dominion Freight Line experienced similar poor market conditions, yet its volume falls were around half that of YRC. Revenue was down 20% whilst income was down 40% on a year-on-year basis but the company was still profitable.

The continuing fall in volumes has also spread to the previously-strong rail sector where Burlington Northern Santa Fe saw revenue fall by 20% on the back of a 14% decrease in volume, complicated by a change in fuel surcharges. Profit fell by 36%, yet the company remained in the black, underpinned by its coal traffic and the ability to drive down costs.

The clear message from the latest series of quarterly results just published by US land transport companies was, in the words of Douglas Stotlar, CEO of Con-Way, that "the freight markets continued to suffer from excess capacity and intense price competition". That might be qualified to say that the road freight sector is suffering from over-capacity. The logical outcome will be industry consolidation, presumably through the loss of one of the larger companies. Many are suggesting that will be YRC.

However, it is worth noting that some LSPs (logistics service providers) benefit from this situation. C. H. Robinson Worldwide, the non asset-based road freight provider, managed to limit its decline in operating income to 0.9%, on a fall in revenue of 15%, including fuel surcharges. The underlying margin jumped from 18.2% to 22.6%, illustrating the company's ability to press down on costs in such an over-supplied market whilst maintaining rates to customers. In theory, C.H Robinson will suffer as the supply of road freight tightens; however, such a tightening might be a long time in coming.
Transport Intelligence