LTL growth likely to decelerate over winter

Stifel notes that a ‘solid summer’ is giving way to slower growth, though wage pressure still is mostly a truckload issue.    The less-than-truckload sector has shown signs of decelerating growth in early October after “solid momentum” in the summer, according to a note from Stifel’s transportation and logistics research group.
   Stifel Managing Director Dave Ross, who heads up the investment bank’s LTL coverage, said that wage pressure, however, is still largely a truckload issue and is not likely to impact LTL in the short term.
   Ross did note that recent organized labor actions at one Con-way Freight and one FedEx Freight facility have perked up the industry’s ears.
   “More are pending, but we believe that unionization will be contained (as unions have been losing members in LTL for decades),” he said. “Now that the Teamsters have a foot in the door of two of their top targets, though, we believe they’ll fight hard to bring the vote to more terminals. This issue remains mainly a headline risk for now, in our view.”
   More pertinent are growth prospects, and Ross said he expects the industry to hit the headwinds of the winter season over the next two quarters.
   “In our view, year-over-year growth rates in pricing and tonnage should decelerate in 4Q14, before seasonal softness in 1Q15 likely challenges rates further,” Ross said. “These assumptions are already premised on a winter with fewer network disruptions than the immediate past one.”
   He noted that shipment levels should remain in positive territory for the rest of 2014, even if there is slower growth.
   “Nearer term, we had hoped that October would continue the solid momentum from this summer in terms of tonnage growth and pricing, but we have heard some reports that as of mid-September, freight began to soften,” Ross said. “Still, with continued tightness in truck capacity, assuming that the relatively-consolidated LTL space remains disciplined on pricing and that the industrial economy remains stable, the wind should remain at the back of LTL margins for the next couple years, in our view.”
   Finally, Ross said, “declining fuel prices are likely to pinch margins slightly in 3Q14-4Q14. Pricing decisions are now generally made on an ‘all-in’ basis, and fuel had been stable for some time. Newer tractors, which are more fuel-efficient, may help offset some of the pressure for carriers lowering their average fleet age this year.”