=DJ FedEx Freight Restructuring Is Good News For Other Carriers
By David Benoit Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--FedEx Corp.'s (FDX) plan to restructure its freight business and cut capacity marks another positive turn for truckers that carry smaller freight, as the industry climbs back from last year's brutal price war. The shipping giant announced Thursday morning it plans to combine its freight and national less-than-truckload operations, laying off 1,700 employees and closing 100 facilities, as it tries to turn around its weakest performing operations. The company said it expects the move to "substantially improve the profitability" of the freight segment, which racked up a $16 million operating loss in the fiscal first quarter. The decision is likely to affect more than just FedEx's shipping operations, by helping other LTL carriers--which carry smaller orders of freight by combining shipments onto single trucks--raise prices as well. Analysts said this signal from FedEx, as well as the reduced capacity, will help the whole group implement price hikes, which many have already announced. Late last year, LTL carriers, including FedEx, Con-Way Inc. (CNW), Arkansas Best Corp. (ABFS) and Old Dominion Freight Line Inc. (ODFL), slashed prices in what became a scramble to pick up business. Analysts say many of the price cuts were aimed at specifically grabbing the business of YRC Worldwide Inc. (YRCW), which was facing serious debt concerns that competitors tried to exploit. But after some drastic cuts and debt reworking, YRC climbed back from the brink, leaving the whole industry with deflated prices and sending profits reeling. Pricing has been the focal point for investors all year, with most of the stocks dropping sharply. But now analysts say the truckers have realized the error of their ways and FedEx's move is just the latest sign. "They've found a little religion and kind of realized the error of what they've done," said Sterne Agee analyst Jeff Kauffman. "They are saying, 'The free ride is over. We are going to go back to pricing the regular way, take excess capacity out of the system, and make our business profitable again.'" Shares gained across the sector, though the morning's initial gains pulled back slightly. Con-Way rose 2.1% to $29.86, Arkansas Best was up 2% to $24.23 and Old Dominion gained 1.8% to $25.76. YRC added a penny to 28 cents. All the stocks were trading on higher-than-average volumes. FedEx, meanwhile, slipped 3.8% to $82.70 as its outlook for the current quarter disappointed. Stifel Nicolaus analyst David Ross said he's been positive on the industry and said the story to Thursday's gains was overall simple. "Capacity down," Ross said, "buy the LTLs." -By David Benoit, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com |
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