Old Dominion limits 'harder-to-handle' loads to reserve capacity

Dive Brief:

Old Dominion Freight Line has been limiting the number of heavy, large, "harder-to-handle" shipments in its network, CFO Adam Satterfield said during an earnings call Wednesday. Limits were set mainly through pricing actions, and they targeted shipments that are typically more transactional, Satterfield said.
"We increased these efforts during the second quarter, given the ongoing tightness in our industry, to preserve capacity for our customers' traditional LTL shipments," Satterfield said of the limits. Fleet capacity is lagging volumes, and Old Dominion is continuing to use third parities to supplement operations.
LTL revenue per hundredweight increased 10.3% in the quarter YoY, excluding fuel surcharges, which points to improvement in yield and changes in freight mix, Satterfield said.

Dive Insight:

CEO Greg Gantt reiterated that Old Dominion views capacity in three ways: door capacity, fleet and equipment, and people.

The company has been strategically investing in facilities for years, estimating there's currently 15%-20% of excess service-center capacity in its network.

The other two capacity pieces have presented challenges, Gantt said. But Old Dominion is prepared to tackle those, as it anticipates current demand trends will continue into next year, he added.

"We believe the domestic economy is strengthening for both our industrial- and retail-related customers, and we expect additional growth and volumes based on current economic forecasts, as well as customer feedback," Gantt said.

One boon to LTL has been spillover freight from the TL market. But that freight isn't necessarily sticky, especially looking ahead to next year.

That's "the exact reason why we've taken the actions that we have to protect our capacity now to support our customers' traditional LTL shipments," Satterfield said.

TL spillover is usual handled by Old Dominion's spot quote system, and it typically represents 3%-5% of revenue, Satterfield said. Since Old Dominion has pulled back from that freight, it's now at less than 1%, he said. The company also has a TL brokerage operation that existing LTL customers can use.

"We want to make sure that we're protecting our customers and giving them what they need, but there's no reason for us to tie up capacity with these transactional type loads that are here today and gone tomorrow. We want to make sure that we're doing the right thing and protecting the market share that we have that will be with us for the long term," he said.

Old Dominion has been hearing panic from its customers concerning the tight capacity sooner than expected, Satterfield said. Old Dominion's peak season occurs in Q3, particularly in September, Gantt said.

"We want to make sure that we're paying more attention to our traditional LTL shippers — that we're protecting our service and capacity for them ― as we continue to get feedback that they need capacity. Industry capacity is tight," Satterfield said.

Tight capacity has squeezed many fleets, prompting them to prioritize freight and add fees. J.B. Hunt, for example, levied accessorial charges as its intermodal segment became more congested.

Satterfield said competitors' accessorial charges doesn't necessarily impact Old Dominion. A strong pricing environment, like what's occurring now, lifts everyone, he said. But Old Dominion has a "differentiated approach to price," he added.

Old Dominion looks at cost inflation, and then targets the increases in revenue per shipment to generate a cost-plus pricing.

"With that said, each account must stand on its own from an individual profitability standpoint. And so we look at each account on an individual basis, and what the cost inputs are for that particular account, and what our pricing needs to look like to provide an appropriate return for us. And I think we've got really good consistency across our book of business," Satterfield said.

Cost-plus pricing is important to being able to expand capacity, which is the cornerstone of Old Dominion's strategy. The company has expanded its door count over the last decade by more than 50%, supported by a roughly 50% improvement in shipments per day over that same time frame, Satterfield said.