Old Dominion Freight Line (NASDAQ: ODFL) announced a 4.9% general rate increase (GRI) effective March 2.
The less-than-truckload (LTL) carrier said the increase was intended to offset general cost inflation, specifically referencing the company’s investment in facilities, equipment, technology and people.
“To satisfy our customers’ expectations and deliver on the promises we have made, we must continue to enhance our high-quality service network and systems. This GRI will affect our class tariffs and is intended to partially offset the rising costs of real estate, new equipment, technology investments, and competitive employee wage and benefit packages,” stated Old Dominion’s Vice President of Pricing Services, Todd A. Polen.
In its fourth-quarter 2019 earnings press release, Old Dominion announced a capital expenditures (capex) budget of approximately $315 million for 2020. The company plans to spend $245 million for real estate and facility expansion, $20 million on tractors and trailers, and $50 million on IT.
The company incurred nearly $480 million in capex in 2019 completing the construction of several service centers, but delayed the opening of those facilities to keep from incurring additional operating costs. The company plans to open six to eight service centers in 2020, which includes the facilities built last year. Old Dominion opened just one new service center in 2019.
The rate increase doesn’t apply to all freight hauled by Old Dominion, only to rates already established under 559, 670, and 550 tariffs.
Old Dominion, like most LTL carriers, implements GRIs annually assuming supply and demand are adequately balanced and the market will absorb them. The company’s 2020 GRI was pulled forward by two months compared to its 2019 increase, which went into effect on May 1, 2019.
Old Dominion was able to implement a GRI during 2019 when a weak industrial environment weighed on LTL demand. On the company’s fourth-quarter 2019 earnings conference call, management noted that they were seeing some stabilization in the market.
In January, the carrier reported a 0.2% year-over-year increase in revenue per day as revenue per hundredweight excluding fuel surcharges increased 4.1%, offsetting a 3.6% decline in tons per day.
In the fourth quarter, Old Dominion reported a 4.5% year-over-year decline in tonnage and 4% increase in revenue per hundredweight excluding fuel surcharges.
Further, the PMI, a survey of manufacturing supply executives, posted a 50.9 reading in January. This was the first time the barometer for the industrial economy was in expansion territory since July.
Last Wednesday, YRC Worldwide (NASDAQ: YRCW) announced a 4.9% GRI on noncontractual shipments in the United States and Canada, also effective March 2.
FedEx Freight (NYSE: FDX) and UPS Freight (NYSE: UPS) announced 2020 rate increases for certain LTL shipments last year, with FedEx Freight establishing a 5.9% GRI and UPS Freight setting a 3.9% increase.