Market Overview

Old Dominion Raising Rates 4.9% On May 1

Old Dominion Raising Rates 4.9% On May 1


Less-than-truckload (LTL) carrier Old Dominion Freight Line (NASDQ: ODFL)  is putting through a 4.9 percent rate increase effective May 1.

The rate increase will be implemented about 11 months after a general rate increase – also 4.9 percent – which went into effect June 4 of last year.

In both cases, the wording of the company's announcement of the rate increase was essentially identical. Similar to last year, Todd Polen, Old Dominion's vice president of pricing services, said of the increase: "This GRI [general rate increase] will affect our class tariffs and is intended to partially offset the rising costs of new equipment, real estate, technology investments and competitive employee wage and benefit packages. Although the GRI will impact each customer differently based on specific shipment lanes and distance traveled, it is consistent with our long-term yield management philosophy and the overall impact of the increase is anticipated to be approximately 4.9 percent."

In early March Old Dominion gave an update on the company's first quarter performance that up to that point was mixed. Revenue per day for February 2019 was up 7.5 percent from the year before, "due primarily to an increase in LTL revenue per hundredweight," the company said. The June 2019 GRI would have been implemented between the first quarter of 2018 and 2019. For the full first quarter in 2019, revenue per hundredweight was up 9.6 percent compared to the first quarter of 2018.

But LTL tons per day were down 1.5 percent because of a 3.6 percent drop in LTL weight per shipment. The tons per day figure did not decline as much as the LTL weight per shipment number, according to Old Dominion, because there had been a 2.1 percent increase in LTL shipments.

At the time of the March update on market conditions, a report from Bank of America Merrill Lynch commented that while volumes may have been soft, the pricing picture that the report painted was solid. "We expect rate increases may moderate as the year progresses, as our shipper survey has been indicating more available freight capacity," the report said. "Nevertheless, OD has been effective at securing steady rate increases given its high service quality and we expect a rate increase in excess of inflation is likely in 2H19 [the second half of 2019]."

The rate increase ultimately came before the second half of the year, by two months, and at 4.9 percent is clearly above the rate of inflation.

Old Dominion's stock price is down 10.43 percent over the last 52 weeks, according to Barchart. After-hours Monday, when the announcement of the price increase was made, the price fell 41 cents, or 0.27 percent, to $152.06, after a day in which it declined 0.83 percent to $152.47.

Image sourced from Pixabay

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