There is an incredible amount of doom and gloom these days in the LTL trucking industry as companies try to cope with an economic slowdown brought on by the softening housing market, the credit crunch and the high cost of fuel. Looking ahead to 2008 and even 2009, there is great concern about tonnage levels and a deteriorating pricing environment.

Operaing Ratios are Still Respectable

However, when you look at the financial results reported by a number of the major regional LTL trucking firms, with the exception of the YRC regional group, some major players are down but certainly not out. For the first six months of the year, Old Dominion's operating ratio dropped slightly to 90.3 percent, Con-Way Freight's dropped from 86.7 to 90.5 and FedEx Freight's OR dropped from 85.4 to 90.0. Saia reported a 94.2 OR. These are all very respectable operating ratios and suggest that these companies are coping well with the economic downturn. The YRC Regional Group's OR of 99.2 is certainly a concern and reflects more than just the economic decline. In fact, in a recent interview, Bill Zollars, the Chairman and CEO of YRC said that pricing at the regional operations of the LTL carrier has caused some "self-inflicted wounds" and YRC is rectifying this by "firing some customers."

Pricing Discipline and Sound Management are the Keys

As a result, it is regrettable that at these operating ratios, there is so much talk about a lack of pricing discipline. Long haul carriers are going after short haul business and regional carriers are going after longer haul business. FedEx Freight lowered its fuel surcharge by 25% in a very public move to gain market share. This is particularly surprising when you relate them to comments made by its CFO. FedEx said recently it expects a lower peak shipping season, but that fuel costs were its biggest concern going forward. "Since September, our fuel costs have increased more than 8%, or $85 million," said Alan Graf, FedEx Corp.’s CFO. "While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices.” If that is the case, why lower your fuel surcharge by 25% at a time when fuel costs are going up?

Certainly this is a time to continue to provide a high level of service, to keep a tight rein on costs, to replace customers with low operating ratios with better peforming freight and to maintain a strong sales effort. The well managed LTL companies will come through this period if they maintain pricing discipline and keep "self inflcited wounds" to a minimum.