Last week, we broke down the Q3 Earnings reports from FedEx Freight, Knight-Swift, TForce Freight, and Old Dominion. Next, we’ll analyze the reports from ABF Freight to better understand the changes and innovations within their operations.
Throughout this series, we closely examine the 3Q23 reports from different prominent LTL carriers; it allows us insight into what drives a carrier’s successes or challenges within the logistics industry.
On October 27th, ArcBest released their Q3 Earnings results from 2023, including their LTL unit ABF Freight.
After faltering a bit last quarter, ABF Freight came on strong in Q3 with significant improvements in profit on the heels of the Yellow closure.
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ABF management did an excellent job adjusting costs. Let’s take a look at some of their Q3 metrics:
🚛 Carrier 5: ArcBest Freight (ABF)
Revenue was down -6.4% year over year and was only up slightly Quarter over Quarter at 2.7%.
Shown above: ABF Quarterly Earnings 2023 (Q3)
Interestingly, shipment counts were only down -0.9% over last year but were DOWN -4.3% quarter over quarter.
....this doesn't make sense on its face. Read down further where I unpack WHY the shipment count was down quarter over quarter with Yellow’s closure taken into account.
Similarly, tonnage was down -8.5% from last year and was down a greater amount at -13.1% sequentially.
While ABF has obviously replaced a significant amount of transactional business with Yellow’s core business, they seem to have ✨ample room✨ to take on more.
It seems like they shed a lot more transactional business than they gained on the core business front from Yellow… they may have been over-relying on transactional business earlier in 2023.
Their unadjusted OR of 89.9 in Q1 was a significant improvement over their 94.0 in Q2.
On a year-over-year basis, the 89.9 OR was 370 basis points worse than the 86.2 OR registered in Q3 of 2022.
This dramatic drop came from the business brought on from Yellow, but more importantly, business mix and cost management adjustments were made to offset their new labor contract.
📦 A Shift in Business Mix
ABF’s new labor agreement added 350 basis points to the OR in this recent quarter, which can help put these OR changes into more perspective.
While other carriers also absorbed labor cost increases in Q3, none did with the same magnitude as ABF.
ABF has seen a bigger slide in weight/shipment compared to their peers because of the changing mix in transactional business (which has a higher weight/shipment than core business).
Their weight/shipment fell -7.7% from last year and fell an even greater -9.2% sequentially as they purged transactional business and replaced it with shared Yellow business (core).
Interestingly, the length of haul has been dropping at ABF also.
Not only did their transactional business have a higher weight/shipment, but it also had a longer length of haul. Both tend to increase costs, so seeing these metrics drop is a springboard to a lower cost structure.
If the transactional business is more costly and less price-favorable than the core, it’s clear what can happen when ABF swaps for the core business.
💡 Milestones and Insights
ABF Freight is celebrating 100 years in business. Quite the milestone!
Management expects a modest improvement in OR from Q3 to Q4 in 2023 - maybe a 100-200 basis point improvement.
ABF obtained a 4.0% increase on deferred accounts during Q3…which barely covers the cost of their new labor contract.
In light of Yellow’s shutdown, they reduced PT, cartage, and rental costs while improving service…
Does this suggest they were adding PT, cartage, and rental costs to handle transactional business in Q2 and prior?
Again, this may help explain the dramatic improvement in profit.
😱 Strategic Expansion and Financial Surprises
With over 200 dock doors added so far in 2023, ABF aims to add over 500 doors by 2025.
This would include purchases of Yellow terminals, which suggests that ABF will be an active bidder.
They had "guided" towards a flat OR from Q2 to Q3…so coming in with a significant OR improvement was surprising.
Maybe even for ABF management.
ABF did benefit from the Estes cyber-attack, though much of that business has trickled back to Estes.
ABF’s core business is up 20% in October compared to June - which shows that they definitely traded out transactional business for the core business.
🛣️ The Road Ahead to 2024
Management noted they could use their Dynamic Pricing to encourage more transactional business if the market continues to soften…
They want to be cautious and make sure that the revenue generated from this additional transactional business will at least cover additional variable costs.
We suspect ABF to be much more prudent in the future when using Dynamic Pricing to work through market softness.
They noted that labor is much easier to obtain today than during COVID and that they can strategically add labor by the market as needed right now.
The belief is that the OR for Q3 shows how they can maintain an OR in the 80s going forward given positive direction in pricing, efficiency gains, service offerings, and available capacity.
ABF / ArcBest has a great blend of asset-based and asset-light options for customers.
They rarely have to say "No" to a customer, as what does not fit well with ABF can be handled by the Managed Transportation team at ArcBest.
🔜 Coming Up Next: Saia LTL
Keep an eye out for the next part of the series tomorrow, where we’ll dissect the Q3 Earnings results for Saia LTL. From their Earnings release, Saia sure appears to be the big winner from Yellow in terms of adding business.
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This article was collaboratively written by “LTL Observers” - a collective of industry veterans spanning the carrier, shipper, 3PL, and tech provider spaces who are willing to share their opinions.
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