The less than truckload segment of the freight market was hit particularly hard during the Great Recession. This asset-heavy component of the freight market faced a number challenges. Truckload carriers siphoned off some of the larger LTL shipments, parcel carriers picked off a segment of the smaller LTL loads, and overcapacity placed downward pressure on rates while less volume adversely affected the economic viability of the sector. To make matters worse, some of the industry leaders targeted YRC’s freight, the struggling LTL giant, further eroding their profitability and the profitability of the entire industry. The total revenue in this sector declined by an estimated 25 percent during the Great Recession. It regained only a fraction of this volume in 2010. The industry is still trying to dig out of the hole that was created.

A variety of variables are helping to put the industry on stronger footing. Tight truckload capacity and higher truckload and intermodal rates have encouraged some shippers to shift some freight back to LTL transportation. With driver shortages, LTL carriers are being selective as to what they will move and are opting for smaller, more profitable shipments. The slow pace of the economic recovery is serving as a moderating force on inventory levels.

At the same time, truckload carriers are reserving their capacity for direct to customer full load deliveries and cutting back on multi stop partial truckload shipments. Some of this tonnage is moving back to LTL transportation. With tighter capacity, this allows LTL carriers to raise rates. “The mix is shifting more toward the lighter-weight LTL, but that’s a good thing because it adds to our density on our pickup and delivery routes,” commented David Congdon, president and CEO of Old Dominion Freight Lines. “Our business is strong, and it’s taking up a lot of our excess capacity.”

The top 25 LTL carriers in the United States control 87.6 percent of the market. Nine companies with in excess of $1 billion in sales account for 77.1 percent of the business. Most of the major LTL players are showing good increases in tonnage. Not all of the top 25 LTL carriers are benefiting evenly from the improving economy.

A look at a few key pieces of data helps explain the variation in results. Saia, UPS Freight, Con-way, Roadrunner, FedEx Freight and ODFL are all showing increases in yields of 8 percent or more. YRC National and Regional and ABF Freight have produced increases in yield of about 2 percent. YRC blamed the poor increase in yields on customer mix, a reliance on national account customers that come with volume discounts, heavier shipments and “relatively” stable pricing year/year. ODFL did a better job of balancing costs, freight mix and other variables than other publicly traded companies.

FedEx Freight, one of the companies seeking market share during the economic downturn lost $250 million over its last four quarters. Con-way also added low priced freight to gain market share and paid a big price when a surge in inventory restocking forced the company to handle high volumes of low margin freight. ODFL kept its rate discounts in place during 2009 as profits declined.

ODFL had an OR of 91.0 in quarter 1, 2011 while ABF, YRC National and FedEx Freight had OR’s over 105. Clearly targeting the right accounts (e.g. smaller, local customers with higher margins), cost management (e.g. matching capacity to business volumes, choosing when to move overflow truckload shipments versus lighter LTL freight) and yield management (e.g. limiting rate discounting, driving rate increases in line with cost increases and market conditions) are the keys to driving greater profitability in this sector.

Last week I had the opportunity of seeing the famous ex-CEO of General Electric, Jack Welsh, interviewed on CNN’s Piers Morgan show. There were several things that Jack said that were interesting, one of which is highlighted in this blog.

Jack made the point that good leaders are able to craft, communicate and sell their vision of the future. This is one of the reasons why Barrack Obama was able to defeat John McCain a few years ago to become President of the United States. A majority of Americans bought into his vision that he would be the change agent. He and his party would be best able to lead America out of its economic downturn and into a more financially successful future. Of course, President Obama’s charisma and his skills as an orator were very helpful in selling his message of hope to the American electorate.

The same skills are very helpful to army generals and business leaders. Military personnel and company employees want to know where their leaders are taking them, what is the roadmap for success and how they will each personally and/or professionally benefit from the successful execution of the leader’s vision?

As a Republican, Jack expressed the view that Tim Pawlenty, one of the candidates for the Republican Presidential nomination, has the most coherent and logical vision for the future of America. While he may not be charismatic, his vision makes the most sense of the various candidates in the running. Since President Obama has not been able to fully energize the American economy during his tenure to date, this may leave him vulnerable to Mr. Pawlenty’s vision for the future. Even if President Obama is able to craft a strong and revitalized vision statement, in his bid to gain re-election, this begs the question of whether or not he would be more successful if he is granted another four years in office?

Over the past few days, I read the article on the future of YRC National in the current issue of the Journal of Commerce. This brought back Jack’s comments about vision.

YRC had a vision. By buying Roadway and USF, it sought to position itself as the leading LTL player in North America. The vision has not become a reality. It was not executed successfully. The company’s revenues have shrunk by fifty percent since its peak and it has lost hundreds of millions of dollars.

YRC has gone though a number of financial gyrations to remain in business. It has enough cash to take it through some part of 2012. Certainly it cannot continue to lose $100 million a quarter. From published reports, it appears to be achieving lower yields on its freight than a number of its other publicly traded competitors. This appears to be a result of an overdependence on lower yielding national account freight and a tendency to acquire/attract lower margin freight.

This begs the question of what is YRC’s vision for the future. How is it going to differentiate itself from its competitors? What can it do to project a level of continuity and financial sustainability so that it will attract new shippers that will ultimately improve its freight mix and its prospects for survival? Since it appears that the current Chairman and CEO is about to leave, who will be the new leader, when will he come on the scene and can he quickly redirect the fortunes of this once great company? Most importantly, will the plan work? Since YRC’s margin of error is small, we should know sooner than later. For President Obama, for the individual who secures the Republican nomination for President and for the future leader of YRC, crafting, selling and executing their vision of the future will be a key element of their success.

Rosalyn Wilson presented the CSCMP’s annual State of Logistics Report at the National Press Club in Washington, DC on June 15. Each year this very valuable publication outlines the major economic forces shaping the world of logistics and highlights the results of these impacts. Here are some of the findings that struck me as significant.

The year 2010 was clearly better than 2009 but not on par with the economic rebound we have seen after previous recessions. “Consumers are not leading the charge as they have in other recoveries because of the fragile state of the economy and their personal wealth.” Persistent unemployment, substandard job creation, declining home prices, rising food and fuel costs all adversely affected the net worth of consumers, dampening their spending patterns. While industrial production was up by 5.3 percent in 2010, consumer production was almost flat.

After declines in 2008 and 2009, logistics costs increased by 10.4 percent in 2010. Even in a relatively soft year, transportation costs rose by 10 percent, driven by higher volumes, rate increases and rising fuel surcharges. Logistics as a percent of GDP increased to 8.3 percent, lower than any year but 2009 in the past decade.

While freight volumes ebbed and flowed in 2010, capacity was tight due to the large exodus of equipment and drivers during the Great Recession. The report indicated that industry capacity is lower than it was in 2007.

Consumers changed their behaviour. They became more “disciplined” and focused more on sales and discounted products. Manufacturers have responded by reducing packaging sizes while holding the line on price.

The recovery in the transportation sector varied by mode. Railroads experienced a 21.8 percent surge in revenues. Trucking, the largest component of transportation costs was hit the hardest. Trucking costs were up 9.3 percent in 2010. Truck tonnage rose by only 5.3 percent. This did not offset the declines in the previous years. A big part of the revenue increase was the upswing in fuel surcharges, even if most truckers were not able to recover their additional fuel costs. Achieving rate increases was a challenge due to excess capacity.

The workforce of truck fleets has declined by 13.4 percent over the past four years. Driver recruitment remains a challenge. The report highlights that truck freight volumes are rising faster than the pace of new driver hires. One in six drivers is over 55 years of age while less than 25% of drivers are under 35 years of age and the percentage is shrinking.

Ms. Wilson summed up her report by stating that “the recovery from the Great Recession has proved to be more elusive and prolonged than any in our history.” She went on to say that “there are signs that the economy is slowing and predictions for a strong showing in 2011 may fall short.”