LTL: Lanes of Change

Recent changes in third quarter earnings projections at two major LTL companies highlight a slow but significant shift in freight patterns— one giving those LTL carriers with access to international freight streams a leg up over those that remain more domestically focused.

Kansas City, MO-based SCS Transportation -- a holding company for TL/LTL hybrid Jevic Transportation and regional LTL player Saia Motor Freight – recently lowered its earnings outlook for the third quarter based on overall declines in tonnage and weight per shipment, while FedEx Corp. boosted its profit projections based in part on higher LTL demand.

The difference between the two forecasts is simple, Satish Jindel, president of Pittsburgh-based SJ Consulting, told Fleet Owner – FedEx has a major international presence while SCS doesn’t.

“The whole notion that the LTL market breaks down into regional, multi-regional, and national carriers is a segmentation of the past,” Jindel said. “Commerce today has become more global and more goods are moving across national boundaries. So those companies with international offerings are getting more business, maybe not in terms of pure freight volume, but because of the greater number of security requirements, cargo screening rules, etc.”

In Jindel’s view, the “multi-regional” LTL market is going away as players are forced to become either tightly focused regional carriers or take on a national scope. That’s why many LTL operators are buying up smaller carriers, in order to fill in gaps in their regional networks to create a national network that can access international freight.

SCS, for example, purchased regional LTL operator Clark Bros. Transfer in February to help its Saia subsidiary add Midwestern states to its service territory.

Yet despite that acquisition and robust freight demand this year, SCS still lowered its third-quarter earnings projections to between 41 and 47 cents per share, down from the 51 to 57 cents per share it projected earlier this year.

By contrast, FedEx expects to report higher earnings of $1.00 to $1.10 per share for its first fiscal quarter, which ends this week, up from 90 cents to $1.00 per share, and 2005 fiscal year profits of $4.40 to $4.60 per share, up from the $4.20 to $4.40 per share it previously forecasted. “We are seeing strong demand across our international express, ground and LTL services,” said Alan B. Graf, Jr., FedEx’s executive vp & CFO. “Customers are increasingly looking to FedEx to manage a broader range of their transportation and supply chain needs. We have strong momentum in our businesses and believe the economy continues on a sustainable expansion path.”

Though he noted there are larger potential business risks on the horizon, such as prolonged high oil costs, Graf believes FedEx could continue to see strong demand that should bring higher earnings. “To meet this increased demand for our services, we will increase our capital investments to between $2 billion and $2.1 billion in fiscal 2005 to expand the capacity of our international express, ground and freight networks,” he noted.

“The rise in international freight volumes is driving shifts and changes in the carrier selection process – and LTL carriers are trying to adapt to that change by expanding their networks,” SJ Consulting’s Jindel said.

One example of that change is G.I Trucking’s effort to boost its freight business between the continental U.S. and Hawaii. The Brea, CA regional LTL said it experienced a 40% increase in the number of shipments to Hawaii in 2003, translating into a 60% increase in revenue, over 2002. In the first quarter of 2004, G.I. Trucking said it gained a 33% increase in the number of shipments to Hawaii, fostering a 70% increase in revenue over the same period of 2003.

Though the company has offered ocean service to and from Hawaii for 27 years, G.I. Trucking said its decision to offer twice-weekly sailings from the mainland – via its partnership with Matson Navigation – has been the main reason for the business and revenue gains.

“Shippers benefit from this kind of scheduled offerings. If they miss a shipment, they don’t have to wait several days for a scheduled sailing,” said Fran Glidewell, vp- sales and marketing for G.I. Trucking “No other carrier offers twice weekly sailing from any port outside of California.”

Faster transit times are also a method LTL carriers are using to win more international business, based on their ability to cover more ground and make tighter delivery windows for shippers.

Richmond, VA-based LTL Overnite Transportation Co., said it has sliced transit times to three days between half a dozen key Southern California locations and three Midwestern states – covering nearly 110 transit lanes.

“As our customers continue to expand and require shorter cycle times and just-in-time delivery service, Overnite will continue to revise its schedules to meet their demands," said Steve Kershner, VP-Quality and Operations Support.

These latest enhancements are the most recent improvements in Overnite’s nationwide efforts to reduce transit times, resulting in 1,300 total lane improvements this year, the company said.

“It’s all about filling in the holes and offering broader services now,” added SJ Consulting’s Jindel. “That’s why you see these service expansions and acquisitions.”

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