News / LTL carrier Saia hits Q1 highs with long-haul point-to-point expansion

Photo: Saia

Despite the economic headwinds that have weighed on demand, US less-than-truckload (LTL) carrier Saia rolled through the first quarter, setting new company records for tonnage and shipment count, which sent revenues up 4.3%.

Owing to a limited field of players and high entry barriers, the LTL sector has fared better than truckload and parcel carriers in those headwinds, but operators are also feeling pressure. Q1 produced mixed results, with several players reporting declining margins and revenue.

Saia’s growth came primarily on the back of expansion into new markets, as shipment growth in its existing markets was largely flat.

During the past year the company opened 21 new terminals, some acquired from the asset sale of defunct LTL carrier Yellow, and this boosted its network to 213 locations.

In an earnings call, Saia president and CEO Frederick Holzgrefe noted that in past years the company typically saw increases in shipments and tonnage of about 3%-4% from February to March, but this year comparable growth was largely restricted to facilities opened less than three years ago. In older locations shipment count actually declined slightly from February to March, which Mr Holzgrefe attributed to the uncertain macroeconomic environment.

New markets tend to produce lower margins than legacy areas, due to market entry costs and discounting to draw in business, and Saia’s operating income shrank 40.5% in the quarter, to $70.2m.

One avenue that produced volume growth as well as improved margins was its push into point-to-point services on longer routes, bypassing its hub-and-spoke system.

Mr Holzgrefe said: “If you can figure out ways to go drive a little bit of volume, get those customers [to] consolidate that freight and build a direct route from, say, Atlanta all the way to California without having to break the freight through Dallas or Phoenix, that’s actually a way to build scale.”

The move goes against the grain of the LTL business model, which is built on hub-and-spoke operations, but it makes sense, commented Satish Jindel, founder and president of SJ Consulting. “What Saia is doing is not a novel concept, but it’s the right approach. It’s rational and justifiable,” he said. “If you have enough volume from Philadelphia to Chicago, you don’t have to go through a terminal, you can go direct.”

This appeals to shippers as they see faster transit times, without loading and reloading at terminals or waiting for freight to accumulate to fill a truck, he added.

The strategy has limits, though, as supply chains changed over the years, resulting in shorter distances for shipments – mostly under 1,000 miles.

On the other hand, margins have improved, Mr Jindel noted.

He voiced concern, though, that an aggressive push in that direction could have a negative impact on the market in the long term. In the present uncertainty for the industry, trying to muscle into new markets with aggressive pricing might create a short-term benefit for shippers, but could result in under-investment and declining service standards, long-term.

“In the market now – flat to under-pressure – you need to be cautious about taking market share from people,” he warned.