LTL Carrier 1Q23 Earnings – Individual Carrier Recaps

  • LTL Carrier 1Q23 Earnings – Individual Carrier Recaps

    Below are the individual LTL carrier recaps I provided for all publicly-traded LTL carriers following their 1Q23 earnings releases.

    •  Note that FedEx Freight uses a non-standard fiscal calendar and reports their earnings one month in advance of other carriers.


    FedEx Freight

    FedEx Freight may have been the first LTL carrier to report earnings in 2023, but they are the last carrier I will cover, finally.

    FedEx uses a non-standard fiscal calendar that starts in June, not January. Their results cover the period of Dec 2022 through Feb 2023, or one month ahead of all other publicly-traded LTL carriers.

    Based upon the consistent softness from Winter 2022 through Spring 2023, comparisons of FedEx Freight’s quarter ending in Feb 2023 versus all others ending in Mar 2023 appears quite relevant. So let’s dive in:

    > Fedex Freight’s reported Operating Ratio was 82.3 a market improvement from their 85.0 OR last year, though most of the improvement was tied to one-time pension costs last year and a terminal sale this year. Their OR was essentially unchanged with these two factors removed.
    > FedEx Freight reported a significant deterioration in business with tonnage down -20% and shipments down -12%.  Priority shipments were down -13% and Economy shipments were down -9%.
    > Revenue was only down -3%, as Rev per cwt improved a whopping 21.1%. No other carrier came close to such figures.
    > The significant improvement in Rev pet cwt was aided substantially by a large -8% drop in weight/shipment. FedEx Freight is trading Revenue Quality for tonnage.
    > Indications are that their tonnage and shipments were down more than can be explained by macro market forces. It appears FedEx made conscious decisions to push certain freight out of their network. This theory is supported by the significant drop in shipment size, improvement in Revenue per cwt, and a stable Operating Ratio.
    > Do not be surprised if FedEx Freight is the next publicly-traded LTL to join Old Dominion in the “7” club (an OR starting with 7). > What is truly fascinating is that Economy shipments have a higher revenue per shipment than Priority, $418.65 versus $366.17, and a higher Revenue per cwt than Priority, $47.06 versus $36.12. Economy shipments are lighter-weight than Priority, 890 vs 1,014 pounds. Thus their Economy segment carry a much longer average length of haul, or FedEx Freight is pricing their Priority service with a minimal premium over Economy. Or both.
    > FedEx Freight is very focused on cost management and revenue quality right now. Flexing both levers. In fact, FedEx corporate is taking these successful processes at Freight and extending them to other divisions such as Ground.
    > FedEx Freight recently announced they were closing 29 terminals, or 8% of their total. Terminal closures are typically long-term decisions, so it appears FedEx is making conscious decisions to improve freight density and operate more efficiently in order to improve profit margins.

    FedEx Freight remains the largest LTL carrier in North American, albeit a bit smaller with their tonnage, shipment, and terminal contractions. They definitely appear to be following the “Less is Better” philosophy of matching capacity to the business they want to handle.


    Yellow Corporation

    Yellow Corp released their 1Q23 earnings yesterday. As you may know, they are deep into consolidating their multiple divisions into a single One Yellow operation.

    That topic was a big focus on their releases and earnings call, and of course internally. More below:

    > Operating Ratio slipped in line with other carriers, but unfortunately crossed over the line to 100.8 for the quarter. Last year was a 99.3.
    > Tonnage and shipments were down in line with peers at -12% and -13% respectively, but Yellow did have an easier 1Q22 comp than other carriers.
    > Revenue was down -8%.
    > Rev/cwt of 4.4%, or 2.9% excluding fuel surcharge, was modest and may not be covering inflationary cost increases. Pricing gains may be slowing.
    > Leadership noted that contract renewals in 1Q were only 2%-3%, versus 10% last year
    > Yellow did not report Avg Haul but it appears to be shrinking.
    Given LTL industry softness and internal restructuring, Yellow’s business appears to have held up well while pricing gains have been implemented.
    > Phase 1 of their restructuring, with Reddaway, is done. Phase 2 covers integration of Holland and New Penn into One Yellow and is still pending. The Teamsters are holding this final large piece up, requiring the opening of the IBT contract and negotiations before Yellow can move forward.
    > April tonnage was down -16%. Tonnage and revenue for 2Q expected to be below trend, so expect 2Q OR improvement to be modest
    > Refinancing of Yellow’s debt structure is Phase 3 of their 3-Phase plan. Large blocks of debt come due in 2024, and banking covenants may need to be renegotiated before then. This is very important phase.
    > There is palpable concern that the IBT (Teamsters) are limiting use of Purchased Transportation. TL pricing remains suppressed and thus this limits Yellow’s ability to properly manage costs.

    The next 12 months are of great significance to Yellow. Not only are they working to complete their One Yellow network re-design, but they also have a Teamsters contract and debt restructuring to negotiate. The One Yellow network will allow for improved aging on equipment, reduced maintenance, and options to sell excess equipment and terminals. It will be a busy 12 months.



    XPO Logistics released their 1Q23 results yesterday. Lots to cover here. Let’s get started.

    Below is a recap of what Leadership at XPO released plus some commentary:

    > Operating Ratio of 90.8 was a degradation from the 89.9 posted last year but slightly better than average against their peers.
    > Tonnage was down a modest -2%, shipments were up a similar amount, and revenue was up 1%.
    > Revenue per cwt was up only 2.4%, or 1.4% with fuel surcharge excluded. Both metrics were decidedly below average, and XPO does not expect much improvement in 2Q.
    > Weight per shipment fell -3.3%, partly due to the growth in local account business, and this should have helped Rev/cwt.
    9% growth in local accounts is behind their tonnage and shipment gains.
    > It appears obvious based upon the metrics above that XPO chose to gain market share with price in this soft freight environment. This may have helped them in the short run, but does not seem to align with their stated goals for the future.
    > Leadership noted that they expect to secure higher yield (premium prices) for service improvements.
    > Accessorial revenue will be a focus area going forward; accessorials were low double-digits in terms of revenue.
    > Big changes have been made recently. Wes Frye, former CFO at ODFL, is on the board of directors, and it now has an Operating Excellence Committee. Dave Bates, former SVP of Ops at ODFL, is now their COO.
    > Claims ratio of 0.7%, was 1.1% in 1Q22. Moving in the right direction but still room for improvement.
    > CAPEX increasing from mid single digits of revenue to 8% – 12% of revenue. Definitely making plans for and investing in the long term.
    > Expect to increase door count low single digits in 2023
    > Contract renewals up only 4.5%. Seems suppressed. They noted they have multiple initiatives in place to improve yield so they recognize this concern.
    > Purchased transportation was 22% of miles, down from 25% last year.
    > Their European operation, which is sizeable at 40% of biz, seems to be a distraction.
    > Leadership expects about 200 basis point margin improvement for 2Q given soft business levels.

    Lots of eyes on XPO right now given the big announcements on their board of directors and COO position. XPO is definitely signally an adoption of a long-term approach. Achieving their goals of being best in class with a “7” on their OR will take a long-term approach and resolve. This will be a great story to watch in LTL.


    Forward Air

    Forward Air released their 1Q23 LTL earnings this week. It was a bit of a mixed bag as revenue and tonnage changes were in line with their peers, but pricing seems to be soft.

    Below are salient portions of what they released plus some commentary:

    > Tonnage was down 12.3% and shipments down 8.4%, in line but a bit worse than their peers who have reported thus far.
    > Rev/cwt quite soft, only grew 1.6%, and dropped -0.7% without fuel. Weight/shipment is falling but is offset by declining average haul. Not strong results on the pricing front.
    > Leadership had predicted earnings improvement in 2023 over 2022. Now feel they will fall short primarily due to 3 reasons: worsening tonnage trends, low pieces per shipment, and declining fuel prices contributed to profit softness
    > Leadership noted they are committed to being the best in handing high-value LTL
    > Leadership believes per customer input that they have the best on-time service and lowest damage rates in the industry.
    > They are focused on increasing weight/shipment, but high-value freight in my view tends to be low-density and low-weight.
    > They are also focused on reducing length of haul so they can use more solo drives rather than teams.
    > Leadership feels revenue per ton-mile excluding fuel is the best pricing proxy, but it is only up 2.5% to 4.0% which would not seem to be covering inflationary expenses given they feel declining fuel prices are hurting profits.
    > Operating ratio of 90.3 was a 300 basis point reduction from the 87.3 last year.
    > A large accrual adjustment for an incentive plan helped prop up profits, as without it the OR would have been closer to 92.0 rather than the 90.3 reported. Thus, their OR actually dropped closer to -4.5 points.
    > Leadership believes we are at the bottom of the freight recession and the LTL market will begin rebounding in the 2nd quarter.
    > Forward Air has been active on the M&A front (recent example is purchase of Land Air Express)  and with terminal expansion.

    Forward Air operates an intriguing asset-light model, has a linehaul network that aligns with major airport locations, and has long offered dimensional LTL pricing more so than other LTL carriers. Their focus on high-value cargo is interesting, and can help support their yields and margins if successful.


    Knight-Swift LTL

    One of the newest entrants to the world of LTL freight is Knight Swift. With their recent purchases and combination of AAA Cooper and MidWest Motor, they are now a significant player in LTL.

    Knight Swift released their 1Q23 earnings last week. Here is what they said about their new LTL division, along with some personal commentary:

    > Tonnage was down 9% and shipments were down 6%, relatively if not slightly better than peers who have reported thus far.
    > Even with tonnage and shipment counts down, Revenue was flat due to an impressive 9.8% growth in Revenue per CWT with fuel included (the best in the industry thus far).
    > The reported adjusted Operating Ratio at 85.7 was a slight improvement from the 85.9 from 1Q last year.
    > It is unusual that they compute OR with fuel surcharge excluded, and do so by subtracting fuel surcharge revenue from both total revenue and total expenses. This makes the Adjusted OR look better by about 200 basis points (87.6) relative to how other carriers traditionally report. Note that TForce Freight computes OR in this unusual manner also.
    > Length of haul expanded 2.5%, as expected with the combination of these two carriers creating expansion opportunities.
    > Leadership noted they are filling out a super-regional carrier network while also creating a national network. The goal is to gain market share.
    > Leadership noted how LTL benefits their TL customers, and how LTL stabilizes the more-cyclical TL business. Softens the peaks and keeps the margins consistent.
    > Leadership indicated plans for 9 new terminals in 2023: 4 planned for AACT, including 2 in MI, and 5 planned for MME.

    My understanding is that AAA Cooper and Midwest Motor have finished merging onto one common operating platform. You have to call their merger an impressive success given the dismal history of mergers in LTL. The parent company KNX seems quite intent on building out a national network quickly. National networks are much more complex than regional and even super-regional networks; this is no easy chore and it may get harder. But several other carriers have grown from a regional to a national level so it is very doable. This is a carrier to keep an eye on.


    TForce Freight

    TFI International, owners of TForce Freight (formerly UPS Freight) released their 1Q23 earnings last week.

    While the results of their US-based LTL unit were noteworthy, other interesting commentary was also provided. See below:

    > Prodigious 22% tonnage and 20% shipment losses, far outpacing their industry peers.
    > The tonnage and shipments losses were colored as due to market softness, but also intentional to shed unprofitable freight, but profits did not improve.
    > Their Operating Ratio turned for the worse, dropping from 90.7 to 95.7. Given intentional shedding of business, there could be issues with their costing accuracy.
    > Roughly 1/2 of the OR deterioration was due to IT transitioning from UPS and severances which should not be present going forward.
    > TFI’s Canadian-based OR is much better, and improving, currently at 75.5 (ODFL-like). This has to be putting pressure on Tforce in the US to improve, as TFI knows what is possible.
    > Canadian-based LTL business was down 9%, but again on the Canadian side they managed to improve an already-solid OR
    > TFI remains aggressive on M&A with a target of $300M for 2023, but noted they do something BIG every 3 years; their chairman made a point to mention this.
    > Their chairman also stated “something may happen on something of size before the end of the year or into next year” and “stay tuned”
    > Of course, the two bullets above are noteworthy due to chatter about a purchase or merger with ArcBest (ABF), and the fact that TFI owns a small piece of ArcBest
    > Ownership of Arcbest down to 4% from 5% to stay below SEC reporting levels. Their chairman also noted that both Tforce and ABF are busy with teamsters. “So for now, I would say nothing going on, and we’ll see down the road”.
    > Too much chatter from their chairman about ArcBest for this to be much ado about nothing. As he noted, we should “stay tuned”.
    > Expects Q3 and Q4 to be soft like Q2 is looking right now.  Expects Q2 – Q4 to be tougher than they thought
    > Expecting TForce Freight to hit an OR of 92 for the rest of 2023

    TForce Freight had a tough quarter with substantial business losses albeit intentional. They are not expecting much in terms of OR improvement with their culling of unprofitable business, which is concerning. But this is a company with a long-term focus and they seem confident that TForce Freight can operate where expected in the coming years. They may be banking on some form of M&A activity to get there, though.


    Saia LTL Freight


    Saia LTL Freight’s 1Q23 Earnings are out. Impressive results indeed.

    In a down LTL freight market, Saia is showing strength. Here is what they reported, with a bit of commentary:

    > Revenue was flat, just a -0.1% drop.
    > Tonnage was down -5.5%, a moderate drop in this tough LTL environment.
    > Rev/cwt up 5.8%, and Rev/Ship up 7.6%. Doing a nice job managing and balancing price and biz levels. Note that wgt/shipment and length of haul pushed Rev/cwt down.
    > Saia has opened 4 new terminals in 2023, including a new terminal in NE Atlanta (it’s a showcase terminal).
    > Adding one terminal in May, and plan for 3 more in 2H23. Opened 21 new facilities in the last 2 years. Strong focus on growth, getting closer to customers.
    > Noted that they plan to maintain and improve margins in this inflationary environment by providing great quality.
    > April shipment counts and tonnage suggesting a bottom has been found, at least for Saia.
    > Transactional 3PL business is only around 4% – 5%.
    > I estimate CSP 3PL business is around 15%, making 3PL business around 20% total.
    > Saia is focused on growing profitability and does not see much opportunity with transactional 3PL biz.
    > Expecting 100 basis OR improvement from 1Q to 2Q
    > Saia is much more focused on revenue per shipment than revenue per cwt, and thus wgt/shipment carries a high focus. They want heavier-weight freight.
    > Saia’s average shipment size was 1,439 lbs which may be 2nd-best in the industry. (Guess who is higher)
    > Increased contract pricing by 7.5% in 1Q23, a healthy increase in a soft LTL environment.

    Indications are Saia is getting to the point where they are able to charge a real premium price for their service in a manner that differentiates them from many competitors. They are showing strength in growing their business and securing price increases above inflationary cost levels, and that is hard to do unless you are delivering for customers. They seem to be executing well right now.


    ABF Freight


    ABF Freight’s parent company ArcBest release their 1Q23 earnings on Apr 28.  Lot’s to digest.

    Their Dynamic Pricing model deserves significant discussion as it had a major impact on their result. Let’s dive in:

    > In a down LTL freight market, shipments up 8.8%, tonnage up 3.5%.  ABF’s Dynamic pricing model is driving this gain.
    > Revenue per cwt was down -3.9%, far worse than their peers who have reported, and possibly the worst of all carriers for 1Q23. Not what we expect from ABF.
    > OR deteriorated worse than peers, by 4.5 points.
    > Use of Dynamic pricing kept employees working and protected core business by attracting significant transactional business.
    > Transactional business drove a 10% tonnage increase during 1Q23, as without this transactional growth from Dynamic pricing their tonnage would have been down similar to their peers. That is a massive injection of transactional business.
    > They believe this massive injection of transactional business was incrementally profitable and thus good for the company.
    > They believe use of Dynamic pricing benefited ABF both short-term and long-term. Employees (including IBT) benefit with no layoffs, core customers benefit with better service.
    > My view is that ABF benefited significantly from their Dynamic Pricing as they likely would have operated worse without it due to restructure work rules.
    > It remains to be see if ABF maximized use of their Dynamic Pricing in 1Q23 or over-played their hand.
    > They believe Dynamic Pricing does not impact core business, but the moat may not be perfect (some core customers use Dynamic).
    > ABF’s OR is always tough in 1Q due to seasonality plus restrictive work rules. Note however this was ABF’s 2nd best 1Q OR ever.
    > I expect ABF to continue to flex dynamic pricing usage in line with market levels.
    > Leadership was asked about TFII merger talks, and simply shared that discussions about real estate were the best opportunity. They seemed to suggest ArcBest would not be a willing seller.
    > Leadership expects 200 basis point improvement from 1Q to 2Q
    > ArcBest continues to tout their “Vaux” freight handling innovation. It is being used within 4 of their terminal facilities, with 2 others being added soon. And they claim they are getting significant interest from major shippers.
    > My view on Vaux is that this tech may be a few years too early, and lack of labor currently constrains the potential. This tech may need autonomous forklifts to really take off.
    > Increased contract pricing by only 3.9% in 1Q23, a below-average increase that might not be covering inflationary cost increases.

    All in all, it appears ABF/ArcBest managed their LTL segment very well during a tough environment by using the unique tools at their disposal. Use of their Dynamic Pricing program significantly impacted their results, and is impacting other LTL carriers as well.


    Old Dominion

    First up is Old Dominion who announced this morning, April 26. They are always the first carrier out of the gate. Here are the highlights:

    * OR deteriorated from 72.9 to 73.4
    * Tonnage was down 12% for Jan-Mar
    * Tonnage drop has accelerated to down 15% for April
    * The rebound that ODFL expected for spring has not materialized
    * ODFL is losing business from shippers favoring price over service
    * ODFL is seeing this loss particularly with 3PL business
    * ODFL intends to maintain yield discipline to offset rising costs and provide for ongoing investment in their business
    * Market share is stable, and ODFL is indicating they will sacrifice market share in the short term in order to maintain yield and be well-positioned when the market improves
    * ODFL strongly believes that whatever business they may lose will come back when markets rebound due to their premium service offerings

    I expect ODFL to stick to their long-term plan, what has taken them to where they are today. No need to make major short-term changes. They will use this downturn to focus on reducing internal costs and operating more efficiently so that they are indeed better-positioned to take advantage when business levels recover.

    For LTL shippers, you may be sacrificing service for price today. Now is still a great time to focus internally on how you can do like ODFL, optimizing your internal operation to reduce costs and be better-prepared for the up cycle. Doing so will also better-prepare you with your carriers.







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