A growing dichotomy among US trucking providers

Improving economic conditions have boosted demand for trucking services. According to the American Trucking Association, truck tonnage is up 2.9% year-to-date through July. However, the US trucking industry is also facing mounting issues as drivers leave and finding replacements becomes increasingly difficult while at the same time complying with mounting regulatory requirements. As such, a recent Journal of Commerce article notes that as operating costs such as driver pay rise and federal regulations cut into productivity, hundreds of trucking companies are closing.

The trucking environment is indeed difficult and a growing dichotomy among the large US trucking providers may be occurring. Take for example YRC Worldwide and Old Dominion. YRC Worldwide, beset with financial troubles, struggling to regain traction while Old Dominion continues to put up double-digit growth rates.

For the financial period ending June 30, both companies reported good results. For YRC Freight, operating revenue improved 5.6% with average shipments per day rising 4.8% and revenue per shipment improving 1.2% for the same period. Definitely improving signs for this company.

Meanwhile, for the same period, Old Dominion reported a 19.1% increase in revenue with average shipments per day increasing 12.0% and revenue per shipment (excluding fuel surcharge) a 6.3% rise.

Profitability was in double-digits for Old Dominion while YRC Freight noted a loss, albeit, a much smaller loss compared to second quarter 2013. Still, like the overall industry, costs increased for both companies and this is where the dichotomy is showing up among providers – How best to manage rising costs. While Old Dominion seems well prepared to handle its rising costs, YRC may have more of a difficult time. For example, the cost of purchase transportation increased 23% for YRC Freight during the second quarter. This increase was due to a “less than optimal use of purchased transportation response to increased total shipments.” Indeed, its fleet is an aging one and an additional concern for the company is that its overall fleet maintenance is on the verge of federal intervention. According to the Federal Motor Carrier Safety Administration’s (FMCSA) online safety measurement system database, YRC Freight has a 71.6% vehicle maintenance rating. That rating indicates that about 71.6% of the commercial carriers’ fleets on the road are rated by the DOT as being in a better state of repair than YRC Freight’s vehicles. The federal intervention threshold is a 75.0% vehicle maintenance rating. A lower rating indicates a better state of repair.

This is in comparison with the fleets of competitors such as Con-way Freight, with a 20.1% rating. FedEx Freight, UPS Ground Freight, ABF Freight System and Old Dominion all have ratings of 45.0% to 55.0%; the average for the industry.

The need to invest in its fleet is great particularly as shipments grow. Also, it appears changes it made to its US network, were perhaps too severe as it recently had to upgrade freight terminals in Memphis, Houston and Seattle to distribution centres in order to increase its network capacity.

YRC Freight is certainly making a good turn around and should be commended. However, the trucking environment is fierce and the company faces industry concerns such as trucker shortages and tightening regulatory requirements. Of still more concern stiff competition from providers like Old Dominion which appears to not only be taking market share from leading trucking providers but is also succeeding on the ledger sheets with double digit growth in revenue and profits. Evidently Old Dominion’s conservative approach towards expansion and operational improvements is certainly proving to be successful.

Can YRC manage its operational costs effectively and regain the success it had years ago? In this writer’s opinion, it’s doubtful – the environment is different, the need to invest in its operations is far greater than many competitors and its debt situation continues to be a problem. But then, wonders never cease. The company was declared all but dead just a few short years ago and the progress it has made since then has indeed been quite remarkable.