Less-than-truckload carriers are eyeing the all-important month of March. (Photo: Jim Allen/FreightWaves)
A pair of less-than-truckload carriers on somewhat divergent paths provided first-quarter updates on Tuesday that displayed no material change of course. Old Dominion Freight Line saw volumes sag again in February as it plays the long game at the bottom of the cycle, while competitor Saia reported another large tonnage increase as it fills its recently expanded network through the downturn.
Source: Company reports
Old Dominion’s volumes sag as it awaits more opportune entry point
Thomasville, North Carolina-based Old Dominion (NASDAQ: ODFL) said revenue per day was down 5% year over year in February following a 4.2% decline in January. February tonnage was off 7.1% y/y for a second straight month as shipments fell 5.9% and weight per shipment dipped 1.3%.
Revenue per hundredweight, or yield, was up 2.6% y/y (4.3% higher excluding fuel surcharges) through the first two months of the quarter.
“The decrease in our February revenue results reflects continued softness in the domestic economy as well as the impact of lower fuel prices on our yields,” said Marty Freeman, Old Dominion president and CEO, in a news release. “While our revenue and volumes were lower on a year-over-year basis, demand for our industry-leading service remains strong, and we continue to be cautiously optimistic about the economy.”
The update appears to be in line with the company’s first-quarter guidance calling for revenue of $1.34 billion to $1.38 billion, about a 7% y/y decline at the midpoint of the range and 5% lower on a per-day basis.
March is always a big month for carriers. Old Dominion normally sees a 4.9% tonnage increase from February to March.
February manufacturing data from the Institute for Supply Management released Monday, however, was somewhat concerning. The Purchasing Managers’ Index (PMI) remained just barely in expansion territory at 50.3 during the month, 60 basis points lower than January. January marked the first positive month after 26 months of contraction. (The PMI is a diffusion index measuring sentiment among supply chain managers. A reading above 50 signals growth.)
The new orders subindex, a good tell of future manufacturing activity, fell 6.5 percentage points to 48.6. Prices stepped 7.5 points higher to 62.4. Both sentiment datasets reflect broader concerns over the changing trade landscape that could turn inflationary.
It usually takes a couple of months of positive PMI readings before more volume appears at LTL carrier networks.
Worse-than-normal winter weather to start the year has also been an overhang on the quarter. Many carriers noted above-average service interruptions in January and into February.
“After a strong start to January, in terms of shipment volume, severe winter weather impacted a significant part of our U.S. operations in the second half of January,” Chris Jamroz, executive chairman and CEO at Roadrunner (OTC: RRTS), told FreightWaves. “February is a seasonally soft month, and weather has also not helped LTL volumes the last few weeks.”
Jamroz pointed to the material impact winter storms had on the Southeastern region, which was amplified by “a lack of strong infrastructure and experience in handling such events.”
He too noted the importance of March.
“March is typically the busiest freight month in Q1, so with some weather stability, we should be able to get a better picture of underlying demand soon.”
SONAR: Longhaul LTL Monthly Rate per Ton Mile, Class 50-65 Index. Less-than-truckload monthly indices are based on the median rate per ton mile for four National Motor Freight Classification groupings and five different mileage bands. To learn more about SONAR, click here.
SONAR: Midhaul LTL Monthly Rate per Ton Mile, Class 50-65 Index. To learn more about SONAR, click here.
Old Dominion previously forecast no change to 50 bps of sequential deterioration to the first-quarter operating ratio (inverse of operating margin). That’s about 100 bps better than the normal fourth-quarter-to-first-quarter change. The guide implies a 76.2% OR at the midpoint of the range, which would be 270 bps worse y/y.
In addition to lower volumes across a somewhat fixed-cost network, lower fuel surcharge revenue has been a margin overhang as well. Less-than-truckload fuel surcharge programs have a sliding scale tied to the price of diesel fuel. When diesel prices fall, so does the surcharge percentage captured, essentially presenting a double whammy. Diesel prices are off 8% y/y so far in the first quarter, but about 3% higher from the fourth quarter.
The carrier also has the added burden of carrying roughly 30% excess capacity while it awaits a market recovery.
Old Dominion reminded analysts and investors on its fourth-quarter call (held Feb. 5) that it has maintained market share throughout the downturn and that it normally takes 600 to 800 bps of share during upcycles. For context, it said it added $2 billion in cumulative revenue during the 2021-2022 upswing.
Saia opened 21 terminals and relocated nine more last year. The actions were part of a $235.7 million, 28-terminal portfolio acquisition from Yellow. Saia has opened 69 terminals and relocated 28 in recent years and plans to add or relocate an additional five or six service centers this year.
Saia’s tonnage increased 12.2% y/y in February following a 13.8% increase in January. The February result was the combination of a 4.2% increase in shipments per day and a 7.6% increase in weight per shipment. On a two-year-stacked comparison, tonnage was 23.2% higher in February, Saia’s largest gain since Yellow’s exit.
An increase in weight per shipment weighed on Saia’s yield metrics in the fourth quarter, but that’s largely viewed as a plus as heavier shipment weights often accompany better margins over time. The carrier does not provide revenue-based metrics in its intraquarter updates. It previously said pricing on contracts that renewed during the fourth quarter increased by 7.9% on average.
Saia previously forecast sequential OR deterioration of 30 to 50 bps in the first quarter, implying an 87.5% OR, approximately 300 bps worse y/y. Adverse weather across its Southern- and Eastern-centric network along with a cost overhang from the new terminals are the primary headwinds. It called for full-year margin improvement of 80 to 100 bps in 2025, implying an 84% OR.
Shares of ODFL were up 1.8% at 1:09 p.m. EST on Tuesday while shares of SAIA were up 0.4%. The S&P 500 was off 0.9% at the time.
