Dive Brief:
According to recent interviews and earnings calls, LTL carriers’ retail accounts have outperformed the consistently sluggish industrial demand in the third quarter, marking a continuation of trends from the previous quarter. XPO’s Chief Strategy Officer, Ali Faghri, mentioned in an October 30 interview with Trucking Dive that demand from sectors like construction and agriculture remains particularly weak. “On a positive note, we’re observing improved results in machinery and automotive,” Faghri stated. “Overall, we see the situation as soft but stable.”
Dive Insight:
LTL carriers such as XPO, Saia, and Old Dominion Freight Line generally have a freight composition that includes about two-thirds industrial shipments and one-third retail shipments. Industrial shipments, often heavier, are typically more profitable. Saia’s freight composition is currently “a bit more tilted towards retail,” according to CEO Fritz Holzgrefe, who spoke with Trucking Dive on October 31, although some shipments can be challenging to classify. For instance, he posed the question, “Is a bucket of paint considered industrial or not?”
Retail clients, including major players like Walmart, are introducing additional challenges for carriers. Walmart, as the world’s largest retailer, has leveraged reduced truckload rates by establishing facilities aimed at consolidating LTL shipments into full trailers.
Old Dominion Freight Line has been grappling with persistently low industrial demand for the past two years. This has been highlighted by the Institute for Supply Management, which reported a contraction in manufacturing for nearly two years, as mentioned by CFO Adam Satterfield during a recent earnings call. “This is definitely reflected in our numbers,” Satterfield noted.
Despite the ongoing challenges, XPO is optimistic that industrial demand may start to rebound as they approach next year. Faghri expressed that “we believe lower interest rates and the conclusion of the electoral process will serve as significant catalysts for that improvement.”
In summary, while retail accounts show stronger performance in the current market, many LTL carriers face difficulties stemming from stagnant industrial demand. Their ability to navigate these challenges will be crucial as they look to take advantage of potential market recovery in the near future.
