Less than-truckload (LTL) carriers Old Dominion Freight Line, Inc. (Nasdaq: ODFL) and ArcBest Corp. (Nasdaq: ARCB), the latter of which generates a sizable portion of revenue from its non-asset-based business, posted weak results in their August and July-August time frames, respectively, as a slowdown in U.S. industrial activity hits the sector's bread-and-butter business.
Old Dominion said late Sept. 4 that daily revenue in August declined 0.7% over the same period in 2018 due to a 5.2% percent decline in daily tonnage that was partially offset by an increase in revenue per hundredweight, or the revenue generated per every 100 pounds carried.
The tonnage decline was due to a 4% year-over-year drop in shipments and a 1.2% fall-off in weight per shipment, the company said in a statement. For the first two months of its third quarter, Old Dominion reported gains of 4.8% and 6.1%, respectively, in revenue per hundredweight and LTL revenue per hundredweight. The results exclude the impact of fuel surcharges, which have declined along with the price of diesel fuel.
Company executives telegraphed weakness in shipments and tonnage during the company's recent conference call to discuss second-quarter results. In the Sept. 4 statement, President and CEO Greg C. Gantt said the August results "reflect continued softness in the domestic economy as well as a decline in fuel surcharges." The pricing environment, always a top-of-mind topic with carriers, customers and analysts, remains stable, Gantt said.
The Institute of Supply Management (ISM), which tracks industrial activity on a monthly basis, said Sept. 4 that its closely watched Purchasing Managers Index (PMI) fell below 50% for the first time in three years. Tim Fiore, who heads the group publishing the monthly index on manufacturing, attributed the drop to a decline in new orders. Comments from purchasing managers highlighted the on-going uncertainty surrounding the U.S.-China trade war as a key factor.
Earlier in the day, ArcBest reported that daily revenue fell 2.5% over the same period in 2018, according to a filing with the Securities and Exchange Commission. Total daily shipments and tonnage each declined by 3.5% year-over-year. The sequential tonnage figures are below historical norms for the July-August period, ArcBest said in the filing.
Revenue per each 100 pounds transported, known in the trade as revenue per hundredweight, rose 1%. ArcBest said a high-single-digit revenue increase in LTL-rated shipments was offset by lower revenue per hundredweight on truckload-rated shipments moving in the company's LTL network. ArcBest, like other LTL carriers handling truckload- rated freight, has been impacted by the dramatic decline in non-contract, or spot, truckload rates for most of 2019. The same scenario was the key factor behind ArcBest's weak year-on-year tonnage numbers.
Total weight per shipment was flat over 2018 levels, while LTL-rated shipment weight dropped 5%, ArcBest said. That is likely due to a shift in mix to favor lighter-weight parcel shipments over the company's industrial traffic.
ArcBest said the LTL unit's sequential quarterly operating ratio will be different in the third quarter than the historical range — which typically has been been flat over those periods — due to the effects of the lower shipment weights on LTL-rated shipments as well as increases in information technology and shared services costs. Operating ratio is the measure of operating revenues to expenses, with the lower figure the better. ArcBest's second-quarter operating ratio fell to 93.5% from 99.4%.
Revenue for its asset-light unit dropped 3%, while purchased transportation costs were flat year-on-year, ArcBest said. The unit's performance was impacted by looser truckload capacity that reduced demand and pricing power for its services.
Company executives, speaking at a conference sponsored by investment firm Cowen & Co., sought to put the best face on the two-month results, saying that the company faced tough comparisons with 2018 and that 2019 is shaping up to be the second-best year over the last 12, surpassed only by last year.
One area that needs shoring up, the executives said, is the number of customers using two or more of its services. Currently, four out of 10 customers use the company for two or more services. According to its own research, however, eight out of 10 customers should be tapping ArcBest more than they currently do.
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