Less-than-truckload demand continues to moderate off all-time highs at a faster-than-expected pace.
Old Dominion Freight Line’s (NASDAQ: ODFL) November update showed tonnage was down 8.6% year over year (y/y) during the month, following a 6.5% decline in October. Shipments per day were down by a similar amount in each month but weight per shipment turned negative in November, a Monday news release showed.
The slide in tonnage extended the 2.6% y/y dip recorded during the third quarter. Tonnage declines accelerated in each month as that quarter progressed.
“We believe the year-over-year decrease in volumes is primarily due to continued softness in the domestic economy, as customer demand for our superior service has remained consistently strong,” Greg Gantt, Old Dominion’s president and CEO, stated in the release.
On the third-quarter call in late October, Old Dominion’s management was optimistic that tonnage trends could reverse by the spring. It noted the company fails to take market share for three to five consecutive quarters during downturns and the 2022 third quarter was the third straight period in which the carrier missed its share-gain mark.
Old Dominion saw daily revenue increase y/y by 7.3% in November following a 9.1% increase in October. Higher yields were the driver.
Revenue per hundredweight for the first two months of the fourth quarter was up 17.3% y/y, 8.6% higher excluding fuel surcharges. Retail diesel fuel prices were up 43% for the first two months of the fourth quarter compared to the same period a year ago.
“Old Dominion’s revenue growth for the first two months of the fourth quarter reflects the ongoing improvement in our yield, which more than offset the decrease in volumes,” Gantt said.
ArcBest’s results more muted
ArcBest (NASDAQ: ARCB) reported Monday that tonnage in its asset-based segment, which includes LTL services, was down only 3% y/y in November following a 3.9% decline in October. The carrier’s daily shipments were positive y/y during both months but offset by mid-single-digit declines in weight per shipment.
The update said tonnage, shipments and revenue per shipment for LTL-only freight were up by mid-single-digit percentages y/y during November. LTL weight per shipment was flat y/y during the month.
The filing with the Securities and Exchange Commission said the sequential change in volumes from October to November “were some of the best of the last ten years.”
By comparison, Old Dominion’s tonnage update showed more pronounced declines, but from higher starting points. ArcBest’s two-year-stacked asset-based tonnage comps were down 2.4% in October and up 4.1% in November, compared to increases of roughly 10% and 3% in both months for Old Dominion.
“[The] asset-based business delivered year-over-year revenue growth due to a rational pricing environment, higher fuel surcharges and increased total shipments,” ArcBest’s update read.
Total asset-based revenue per day increased y/y by 7% and 4% in October and November, respectively.
Saia sees estimates and rating cut
Saia (NASDAQ: SAIA) last Wednesday reported tonnage was down 7.7% y/y in November, which followed a 3% decline in October. The result was worse than analysts had predicted, causing several to cut earnings estimates for the fourth quarter and next year.
Bank of America (NYSE: BAC) analyst Ken Hoexter moved his rating on shares of SAIA to “underperform” from “neutral” following the update. “Saia’s midquarter update showed LTL tonnage and shipment trends deteriorating faster in November and larger than our BofA monthly targets,” Hoexter told clients on Thursday.
Some carriers first sounded the alarm at a mid-November investor conference, saying declining demand trends had accelerated from October. Most analysts were forecasting moderating trends in the fourth quarter, but not the high-single-digit declines that are being reported.
Carriers are using furloughs and normal attrition to rightsize headcount to weaker volumes. However, Hoexter believes the actions may not be enough.
“In line with accelerating demand declines and an elusive peak season, some LTL carriers have announced furloughs,” Hoexter said. “Quick cost moves can work to keep pricing in focus, but as volumes hit upper single-digits to double-digit declines the group will be tested.”
Macro industrial data finally capturing the slowdown
Recent macro data is also pointing to a slowing in industrial-related freight demand, which accounts for roughly two-thirds of revenue for LTL carriers.
The Manufacturing Purchasing Managers’ Index (PMI) turned negative in November for the first time since the beginning of the pandemic. A 49 reading was 1.2 percentage points lower than the October level, breaking a stretch of 29 consecutive months in expansion territory, which is indicated by a reading of 50 or higher.
Historically, a PMI reading over 48.7 signals expansion in the overall economy.
The report from the Institute for Supply Management showed new orders slid further into contraction during the month, logging a reading of 47.2. Production remained in growth mode at 51.5 as “companies begin to significantly reduce their backlogs of overdue orders.” The combination of contracting orders and higher production pulled order backlogs 5.3 points lower to 40 for a second straight month of contraction following 27 months of expansion.
Customers’ inventories jumped 7.1 points to 48.7 but were still classified as “too low.”
Industrial production has been flattish on a sequential basis the last three months but is still up 4% y/y on average over that period.
LTL stocks were down again midday Monday. Shares of ODFL were off 2.7% with shares of ARCB down 1.9% compared to the S&P 500, which was down 1.4%.
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