Old Dominion leads LTL industry, ABF value down, shippers say

The takeaway from an annual shipper survey about less-than-truckload carriers is Old Dominion Freight Line leads the industry in quality.

Kevin Huntsman of research company Mastio recently discussed its 12th annual survey on customer value and loyalty in a conference call hosted by transportation analyst David Ross of Stifel. More than 2,000 shippers responded to the survey, ranking publicly-traded and private LTL carriers.

In the survey, shippers said cargo claims or the lack of damage and claims were more important than the rate of being on time. While both were essential, being on time for a pickup was more important than delivering the goods on time.

“Not all shipper responses actually mattered when Mastio analyzed what they said was important and where ratings fell out, though,” Ross wrote in an industry update. “Interesting was what actually mattered where it didn’t rank as high in stated level of importance.”

Shippers were switching carriers because of issues with communication and execution, Ross said. Issues included unfriendly customer service representatives, lengthy claims process, difficulty reaching customer service, not notified when a problem arises, on-time pickup or delivery, damaged goods, differing invoice and quote, and lack of shipment tracking.

Over the past five years, trends in the value map, which measure price and service, show “ABF’s really fallen, UPS Freight has been all over the map, while (Old Dominion) has stayed pretty darn consistent,” Ross said. “Estes and Saia have been moving the right way on service. YRC costs or perceived cost has increased as service declined, which is not good.”

ABF Freight is a the largest subsidiary of Fort Smith-based ArcBest Corp.

Of the eight publicly-traded companies in the survey, Thomasville, N.C.-based Old Dominion was first in 26 of 35 areas and first in 11 of 14 “areas of key differentiation. When it lost out on the No. 1 spot, it was usually either to FedEx Freight or XPO Freight,” Ross said. “On the flip side, Roadrunner ranked last in most categories, but No. 1 on competitive pricing. If the company can improve service, it should be able to also improving pricing.”

Old Dominion looks to raise prices, according to Ross.

“The service is that good. But we believe the company would prefer to grow faster at reasonable prices than stall growth by maxing out on price opportunity. That’s the right approach at current margin levels.”

In another industry update, Ross listed technology, data, people, service and pricing as to why Old Dominion has been more profitable than other LTL carriers.

“Old Dominion is completely paperless,” Ross said. “The company runs all dock and PUD operations without any bills of lading or delivery receipts — similar to how FedEx or UPS have been running their package operations for years.”

Old Dominion captures more data than its competitors and makes it readable “in a way that helps improve operational efficiency and customer service,” Ross said. “Part of this is done through the company’s ‘command center’ at corporate headquarters in (North Carolina), where it can see all at once everything going on in its network and at each terminal.” The company also uses “real-time data to best plan its network routes and staffing rather than relying on historical patterns.”

Turnover is low at Old Dominion because it offers competitive pay, growth opportunities and new, quality equipment and work environments, Ross said. The company is on time more than 99% of the time and has a 0.3% cargo claims ratio, placing it “squarely at the top of the industry.” For price, “it uses technology to better refine its costing model. But more importantly, it stays disciplined in pricing off of these costs, not falling into market traps of lowering rates to where they don’t make any money just to keep a customer.”

ABF PRICING TOO LOW?
ABF might look to raise prices, with Ross noting, “They need to.” In a first-quarter earnings analysis of Fort Smith-based ArcBest, Ross explained ABF’s labor costs are too high while its price too low.

“Some may be confused as to why we call for more price, when yields rose 6.3% (year-over-year) at ABF,” Ross wrote in the analysis. “Simple — yield does not equal price.”

While pricing rose between 1% and 3% in the quarter, “yields were positively impacted by a 1.5% increase in average length of haul and by a 4% decrease in average shipment size.” This was driven by growth in residential e-commerce deliveries, which account for about 15% of ABF’s volume, “much more than we had previously thought.”
The company should raise price on its residential deliveries to improve margins, Ross explained.

“They have a big cost and eat up a lot of driver time often requiring two-man teams,” he said.

In the Mastio survey, shippers wanted an investment into customer service when carriers spend money on technology.

“But we believe operational investments are likely more important, if they prevent late pickups and damages,” Ross wrote. “What shippers really want is their freight picked up on-time, delivered on-time, damage-free, at a fair price.”

When asked why carriers have been slow to adopt density-based pricing, Huntsman explained that LTL carriers along with shippers are accustomed to the National Motor Freight Classification (NMFC) system for pricing.

“This has made it hard to change, but with lots of decision-makers in this area at/near retirement, we expect this to change fairly soon,” Ross said.

Mastio also completed a similar survey for truckload carriers, and the shippers are “mostly different. This supports our view that there are no synergies from having a (truckload) and LTL carrier under one roof.”

LTL YIELD RISES
The estimated revenue per hundredweight, excluding fuel surcharges, rose 1.1% in the first quarter, compared to the same period in 2016, but was down 1.3% from the fourth quarter, according to Stephens LTL Yield Index.

“Yields have held up on a year-over-year basis, while weight per shipment trends turned positive (year-over-year), up 0.6% in (the first quarter of 2017) after nine consecutive quarters of negative (year-over-year) declines.”

“We believe that contractual rate renewables continued to show strength in the (first quarter) as the LTL carriers remained price-disciplined with reported contract renewals” rising between 3% and 5%, transportation analyst Brad Delco of Stephens wrote in the update. “We expect LTL pricing to remain relatively stable throughout 2017, driven by the continued disciplined behavior from the majority of carriers combined with an improving industrial environment supported by eight consecutive months of expansionary ISM/PMI data.”

In 2017, Delco expects pricing to rise in the low-single digits.