State Of The LTL Freight Industry

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ltl, YRCW, ABFS, FREIGHT, CNW, ODFL, SAIA, asset

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  • Union carriers are bolded, typically long haul, deregulation—1200 plus LOH Super regionals grew from regionals with M&A to complete national footprint. Sit in sweet spot of next day, 2 nd and 3day freight, 650 to 950 LOH Next day regionals are fixed in a region, usually non union family owned private carriers that serve a niche—auto, retail, carpet, usually under (under $1 bb in revenue)
  • Imports are down due to drop in dollar Imports are typically high value retail freight Exports are typically heavy low value industrial freight Shipping Patterns - Assembly and Distribution The long-haul LTL networks of 300+ terminals were set up originally to serve the US manufacturing economy (with many intermediate moves in production before the finished goods move), but now with manufacturing having moved offshore, when the finished goods arrive in the US, they usually come back for one move (often TL or regional LTL). In these cases, the domestic LTL segment misses all the intermediate shipments that go into its production, as they are happening overseas. Moreover, many long-haul LTL movements have changed to become two regional LTL moves connected by TL for the linehaul, called “assembly and distribution.” Assembly essentially means that a regional LTL carrier will pick up a large number of LTL shipments in one area, like the L.A. basin, and consolidate them into numerous TL quantities to be delivered to a retailer’s DC on the West Coast. From the DC, the retailer would then hire a TL carrier to haul a truckload or container load (if going intermodal via rail) of freight from L.A. to the Northeast, where the full trailer is dropped off at a Northeastern regional LTL carrier’s facility to deconsolidate and distribute the contents throughout the region using its LTL network.
  • Target was a leader in this area---Goal: “Reduce LTL spend”
  • Armstrong & Associates, Inc. projects that U.S. 3PL revenues will exceed $150 billion in 2010 after a modest year (5.5% increase) in 2008 and an improving year (7.5% increase) in 2009.
  • Numerous examples where package carriers go after the account base of LTLs. Most vulnerable are the carriers with high % of national accounts (YRCW)—not ODFL or ABFS
  • One Stop Shopping Credit Crisis Will Diminish Housing and Automobile Industries Will Gradually Rebound Cost of Fuel May Decline, Speculative Premium May Diminish
  • One Stop Shopping Credit Crisis Will Diminish Housing and Automobile Industries Will Gradually Rebound Cost of Fuel May Decline, Speculative Premium May Diminish
  • State Of The LTL Freight Industry

    1. 1. State of the LTL Industry
    2. 2. <ul><li>Industry Overview and Outlook </li></ul><ul><ul><li>Market Share: Past, Present & Future </li></ul></ul><ul><ul><li>Shipper Trends in the LTL Sector </li></ul></ul><ul><ul><li>Tonnage & Pricing Trends </li></ul></ul><ul><ul><li>Key Competitors Market Position: Who's Left Standing? </li></ul></ul><ul><ul><li>Future LTL Trends </li></ul></ul>
    3. 3. $26.5 Billion LTL Market in North America in 2009 Defined in terms of service: Next Day (0 - 500 miles) $12.1 billion 2 - 5 Day $14.5 billion 2 Day 3 –5 Day (500 - 1000 miles) (over 1000) $6.4 billion $8.1 billion Source: Tom Jackson Estimates Down -26% from LTL revenue peak of 2006
    4. 4. <ul><li>Key Competitors </li></ul><ul><ul><li>YRC National Transportation </li></ul></ul><ul><ul><li>ABF Freight Systems </li></ul></ul><ul><ul><li>FedEx National LTL </li></ul></ul><ul><ul><li>Con-way Freight </li></ul></ul><ul><ul><li>FedEx Freight </li></ul></ul><ul><ul><li>Estes Express Lines </li></ul></ul><ul><ul><li>UPS Freight </li></ul></ul><ul><ul><li>Old Dominion Freight Line </li></ul></ul><ul><ul><li>YRC Regional Transportation </li></ul></ul><ul><ul><li>AAA Cooper Transportation </li></ul></ul><ul><ul><li>Southeastern Freight Lines </li></ul></ul><ul><ul><li>Saia Motor Freight </li></ul></ul><ul><ul><li>Averitt Express </li></ul></ul><ul><ul><li>R+L Carriers </li></ul></ul><ul><ul><li>Vitran Express </li></ul></ul>Long Haul Carriers Super Regional Carriers Next Day Carriers
    5. 5. <ul><li>Carrier Consolidations </li></ul>
    6. 6. <ul><li>Decline in Unionized Trucking - Past </li></ul><ul><ul><li>The decline of the unionized carrier has occurred due in part to the recent number of bankruptcies of these carriers whose workers belonged to IBT. The primary reason for the bankruptcies of these carriers is the higher union wages, benefits and lack of work rules flexibility. </li></ul></ul><ul><ul><li>At the time of deregulation, 55 out of the top 60 carriers in the LTL industry were unionized. Now only two are left. </li></ul></ul>Non Union – 49% Union – 27% Non Union – 73% Union – 51% 1990 2009 Tonnage Market Share of Unionized LTL Carriers has Declined Source: Tom Jackson Estimates
    7. 7. <ul><li>Market Share – Present & Future </li></ul>Source: Tom Jackson Estimates CNW was 9.2%, FDX was 12.5%, YRC was 22.2% in Q4 2008
    8. 8. <ul><li>Market Share – Present & Future </li></ul>Source: Tom Jackson Estimates
    9. 9. <ul><li>Shipper Trends in the LTL Sector </li></ul><ul><ul><ul><li>DC Bypass </li></ul></ul></ul><ul><ul><ul><li>Pool Distribution </li></ul></ul></ul><ul><ul><ul><li>Growth in Outsourcing </li></ul></ul></ul><ul><ul><ul><li>One-Stop Shopping </li></ul></ul></ul><ul><ul><ul><li>Blurring the Lines of Freight Transportation </li></ul></ul></ul>
    10. 10. Asia 1. Before the container doors are closed 2. After the container doors are opened <ul><li>Shipping Patterns – DC Bypass </li></ul><ul><ul><li>Two of the best places to affect the efficiency of the Asia to US supply chain for DC Bypass: </li></ul></ul>
    11. 11. <ul><li>Shipping Patterns – Pool Distribution </li></ul><ul><ul><li>Shipper's have changed their distribution patterns to have added more regional DCs vs. one national DC. This results from the need to be closer to their customers and have shorter lead times (product needs to be there tomorrow, not in three days). </li></ul></ul>
    12. 12. <ul><li>Growth in Outsourcing – 3PLs </li></ul><ul><ul><li>Many shippers realize that transportation is outside their core competency. The shift to outsourcing will benefit the LTL industry at the expense of the private fleet sector. Shippers see the value of leveraging the expertise of a LTL firm as a way to lower costs and compress the logistics cycle time. </li></ul></ul><ul><ul><li>3PLs grow much faster than asset truckers </li></ul></ul>Outsourcing : Percent of Fortune 500 Companies Outsourcing Freight Shipping Source: Tom Jackson Estimates
    13. 13. <ul><li>Service/Price Bundling - “One-Stop Shopping” </li></ul><ul><ul><li>Large integrated package carriers such as UPS, FedEx, and DHL will continue to offer shippers a “One-Stop Shopping” solution. These integrators bundle services and price to customers, as they via for the entire transportation share of wallet of a customer. </li></ul></ul><ul><ul><li>UPS and FedEx’s sales and marketing power to bundling its LTL service with its small package offerings should enable them to exceed market growth. DHL will eventually enter the LTL space. </li></ul></ul>
    14. 14. <ul><li>Blurring the Lines of Freight Transportation </li></ul>
    15. 15. <ul><li>LTL Demand Trends </li></ul><ul><ul><li>Monthly volumes likely bottomed in Q3 2009. Signs of sequential and y/y improvement last 16 weeks, but still below historical norms. </li></ul></ul><ul><ul><ul><li>Inventory restocking - home improvement retailers indicate better trends </li></ul></ul></ul><ul><ul><ul><li>Federal stimulus programs pulled weak demand forward </li></ul></ul></ul><ul><ul><ul><li>Freight diversion from struggling carrier </li></ul></ul></ul><ul><ul><ul><li>TL volumes stronger, TL capacity tighter, LTL wgt/shp growing </li></ul></ul></ul><ul><ul><li>Industry capacity should continue to exit in 2010. However, trying to predict capacity reduction, like with YRC, has proven difficult with banks and debt holders willing to restructure deals rather than force closure and sell off assets in a weak environment. Shippers are NOT going back to YRC </li></ul></ul><ul><ul><li>Is this another Q2 2008? (demand can’t get materially worse) </li></ul></ul>
    16. 16. <ul><li>LTL Pricing Pressure </li></ul><ul><ul><li>Rates growth typically follows volume growth by a few quarters. Rates should be better 2H, while rate in 1H will have a modest uptick y/y. (f/surcharge, culling non contributors, capacity better, TL volumes/stop-offs, wgt/shp trending better) </li></ul></ul><ul><ul><li>Rates will not get significantly better until meaningful capacity exits or an economic tailwind takes hold. </li></ul></ul><ul><ul><li>Regional pricing much more aggressive than longer haul rates. LTL bid activity was at all time high levels in 2009. GP/3PL programs will continue to becoming popular in 2010. </li></ul></ul><ul><ul><li>Fuel surcharge rates were less of an issue in 2009 versus 2008. But 2010 is beginning to see fuel expense rise. </li></ul></ul><ul><ul><li>The longer the freight recession lasts, the better the rebound. Rate recovery from the economy or a major trucking closure will push pricing power back to the carriers. (greater than ’06 and’99 levels). </li></ul></ul>
    17. 17. <ul><li>Who's Left Standing…Long-term? </li></ul><ul><ul><li>Integrated package carriers with LTL offerings (UPS, FDX) will continue to grow. </li></ul></ul><ul><ul><li>Large super regional LTLs with a diversified freight mix and partnerships with other modes will prosper (Estes, CNW, ODFL) and take share. </li></ul></ul><ul><ul><li>Regional LTL carriers that serve niche markets (SAIA, VTNC) will gain national footprints as weaker marginal players sell or exit a geography. </li></ul></ul>
    18. 18. <ul><li>YRC will continue to shed market share in 2010? </li></ul><ul><ul><ul><ul><ul><li>140,953 shipments a day in Q2 2008 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>138,286 shipments a day in Q3 2008 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>123,148 shipments a day in Q4 2008 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>103,082 shipments a day in Q1 2009 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>96,330 shipments a day in Q2 2009 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>91,560 shipments a day in Q3 2009 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>82,745 shipments a day in Q4 2009 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>~75,250 shipments a day in Q1 2010 (estimate ) </li></ul></ul></ul></ul></ul>Source: Tom Jackson Estimates
    19. 19. <ul><li>Freight Overflow To Other Modes </li></ul><ul><ul><li>In the near term, the LTL industry would have trouble absorbing an abrupt closure of YRC, as labor capacity would be the bottle neck. Initially, overflow of YRC freight would also benefit other modes such as (purchased transportation) TL, Intermodal, Forwarders and Small Pack carriers. </li></ul></ul><ul><ul><ul><li>LTL industry terminal (dock doors) capacity = 25 to 30% </li></ul></ul></ul><ul><ul><ul><li>LTL industry equipment (truck/trailer) capacity = 20 to 25% </li></ul></ul></ul><ul><ul><ul><li>LTL industry labor (driver/dockworker) capacity = <5% </li></ul></ul></ul><ul><ul><li>Note: Up to 26% of Yellow/Roadway freight moves on the rails for linehaul </li></ul></ul>Source: Tom Jackson Estimates
    20. 20. <ul><li>Future LTL Trends </li></ul><ul><ul><li>YRC market share erosion continues (41.4% 1990 to 11.5% Q1 2011) </li></ul></ul><ul><ul><li>Modal indifference: ”Blurring the lines of freight transportation” </li></ul></ul><ul><ul><li>Pricing bundling: &quot;One Stop Shipping&quot; for freight transportation </li></ul></ul><ul><ul><li>Pricing pressure will continue until meaningful capacity is removed or an economic tailwind takes hold. </li></ul></ul><ul><ul><li>Further industry consolidation: another LTL acquisition by large integrator and super regionals get national footprint (after 2011). </li></ul></ul><ul><ul><li>Growth of 3PLs will continue (“Echo” types are big customers) </li></ul></ul><ul><ul><li>Used class 8 demand growing with better freight levels, EGR-SCR, pushed out PMs, </li></ul></ul><ul><ul><li>Driver shortage problem will reappear (CSA, HOS, driver health) 2011 </li></ul></ul>
    21. 21. <ul><li>Future LTL Trends </li></ul><ul><ul><li>Profitable Growth Segments of LTL Trucking </li></ul></ul><ul><ul><ul><li>Regional Deliveries (JIT inventory) </li></ul></ul></ul><ul><ul><ul><li>Expedited (air, ground hot shot) </li></ul></ul></ul><ul><ul><ul><li>International (Canada, Mexico, Puerto Rico, HI, AK) </li></ul></ul></ul><ul><ul><ul><li>Specialized Shipments (Government, Tradeshow, White Glove) </li></ul></ul></ul><ul><ul><li>Long term, shippers are redesigning supply chain to remove more costs (costly modes, packaging/weight, fuel) </li></ul></ul><ul><ul><li>Long slow road to recovery—The “new normal” in LTL demand (3%+ GDP) </li></ul></ul><ul><ul><li>The longer the freight recession lasts, the better the rebound will be, as someone has to physically haul the freight. The future will be bright for those that survive, “Darwinism at its best”. </li></ul></ul>

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