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WIKI ANALYSIS
SAIA, Inc. (NYSE:SAIA) is a multi-regional trucking company that ships goods for the retail, chemical and manufacturing industries. As a less-than-truckload (LTL) shipper, Saia consolidates freight from several customers in one trailer-load. Compared to truckload shippers who contract an entire trailer-load to a single client, LTL companies need broad networks of pickup and delivery service centers, as well as larger “breakbulk” facilities where shipments are consolidated and separated. SAIAalso need complex IT systems in order to track freight status information. The asset-intensive nature of the LTL business provides a barrier to entry for new firms. SAIA operates in 34 states, mostly in the south, southwest, midwest, and west coast. As of December 31, 2009, Saia Motor Freight operated a network comprised of 147 service facilities.
Key industry metrics include revenue per hundredweight, which measures the revenue a company earns per hundred pounds of goods transported, total tonnage per year, and number of shipments per year. In 2009, Saia’s revenue per hundredweight was $11.42, total tonnage was 3.5 million tons, and total number of shipments was 6.4 million[1].
As a transportation company, Saia’s earnings are closely tied to the overall health of the economy. The firm’s primary customers are in retail and manufacturing, two cyclical industries. Another concern is volatile fuel prices. Another challenge Saia will need to contend with is the entry of shipping giants FedEx and UPS into the LTL business. These firms bring extensive resources and strong brand names into the LTL market.
Business Overview
Saia operates as a single business segment with one subsidiary, Saia Motor Freight. The firm was organized in 2000 as a subsidiary of YRC Worldwide (YRCW) (another LTL shipper), and became an independent company in the fall of 2002. Saia provides its trucking services in 34 states in the South, West, Midwest, and Pacific Northwest. The company’s primary focus is on regional (500 miles or less) and interregional (between 500 and 1,000 miles) lanes, and shipments weighing between 100 and 10,000 pounds. At the end of 2009, Saia’s freight network consisted of 147 service facilities.
Business Financials
Total revenues for SAIA in 2009 were $849 million, a large decline from its 2008 revenues of $1.03 billion.[1] This led to an operating loss of $3.7 million in 2009, and a net loss of $7.88 million. Due to the tough economic environment in 2009, SAIA had lower tonnage, shipments, and revenue per hundred in 2009 when compared to 2008. Furthermore, as customers shipped less in this recessionary period, excess capacity became available, as multiple carriers had the ability to ship the same goods. As a result, competition increased and drove down prices.
Trends and Forces
Saia’s Business is Susceptible to Economic Conditions
As a transportation company, Saia relies on a healthy economy to keep goods moving about the country. The firm’s primary customers are in retail and manufacturing, two cyclical industries. When demand slows, asset-based trucking firms like Saia experience declining margins until they can adjust their capacity. Additionally, many customers use a bidding system to determine trucking carriers, which tends to keep prices fairly competitive. For instance, when Wal-Mart Stores (WMT) needs freight shipped, it asks several shipping firms to submit how much payment they are willing to accept. The lowest bid usually wins the contract. When shipping volume decreases in a weakening economy, small competitors bid down prices in order to win loads so that they can cover the cost of their tractors.
Saia’s Costs Are Affected By Fuel Prices
Like most of its competitors in the transportation industry, Saia determines shipping rates by charging a base rate plus or minus a change in diesel prices. However, this fuel surcharge is not always fully and immediately transferable to the customer. For instance, fuel consumed when trucks are empty, off-route, or idling are not recoverable. In addition, rising fuel costs tend to push up other costs as well, thereby decreasing the amount of goods shipped indirectly.
The entry of FedEx (FDX) and UPS into LTL Shipping Poses a Threat to Saia
The two giants of global shipping, FedEx and UPS, announced in 2005 that they would enter the less-than-truckload shipping business[3]. While Saia’s track record offers it a short-term advantage over these competitors, UPS and FedEx have greater resources and infrastructure networks. However, some industry analysts feel that UPS and FedEx will compete most heavily with each other, in terms of clients and in business models, leaving Saia to its existing economic niche[3].
New Government Regulations Increase Saia’s Operating Costs
The transportation industry is subject to a number of state and federal rules on issues such as insurance requirements, environmental standards, safety requirements, etc. In 2004, the Department of Transportation reduced the amount of time that drivers can spend behind the wheel[4]. And in 2002, the Environmental Protection Agency instituted new guidelines designed to reduce diesel truck emissions by 2010[5]. The latest stage in this process came into effect January 2007, after which all newly manufactured truck engines have to comply with a set of more restrictive engine emission requirements[6]. Trucks manufactured with the new engines have a purchasing price ~$5,000 to $10,000 higher than older models, are less fuel-efficient, and have higher maintenance costs[7]. Saia’s policy is to replace its tractors after 8 to 10 years[8].
Saia’s Business Model Depends on Maintaining its Non-Union Workforce in a Competitive Driver Market
According to the American Trucking Association, the trucking industry faced a national shortage of 20,000 drivers in 2007, a number that is expected to swell to 111,000 by 2014 [9]. This shortage increases the costs of trucking companies like Saia as they struggle to attract and retain drivers. In addition, Saia’s business model revolves around the flexibility of its non-union workforce, which means its employees are free from union regulations restricting work hours and job functions[10]. Compared to competitors with unionized employees, Saia’s labor force spends less time idle and more time contributing to profitable operations. The company’s ability to sustain this advantage depends on the maintenance of its non-union labor force.
Competition and Market Share
Saia competes with a range of regional and national transportation and logistics companies. Its direct competition is with other less-than-truckload firms who consolidate cargo from several different customers in one trailer-load. Key competitors in this segment include:
- Conway Inc (CNW) provides shipping services for retail, industrial, and government customers. The firm also has a secondary logistics business that accounts for 31% of its revenues [11].
- YRC Worldwide (YRCW) transports mainly industrial, commercial and retail goods. 70% of the company's employee base is unionized under the International Brotherhood of Teamsters[12].
- Landstar System (LSTR) is a non-asset based trucking company, meaning it doesn't own its own trucks; it earns commissions by connecting self-employed truckers who own trucks with shipping customers. Landstar also has a global logistics segment that accounts for roughly 26% of its revenues[13] .
- Old Dominion Freight Line (ODFL) is the sixth largest less-than-truckload (LTL) firm in the U.S. based on revenue[14] and transports general commodities and consumer goods.
- FedEx Freight was formed in 2005 by FedEx’s acquisition of two LTL carriers offering service to complementary regions-Western regional carrier Viking and Eastern/Midwestern carrier American Freightways[15]. FedEx's share of the regional LTL market is now about 12%, the largest in the market[15].
- UPS Ground Freight is the freight arm of UPS’s, formed in 2005 when the company acquired Menlo Worldwide Forwarding and Overnite Transportation[16]. In 2007, UPS Freight, Supply Chain Solutions, and other auxiliary businesses generated $8.4 billion, or 17% of UPS's revenue[16].
- Vitran (VTNC) provides freight services throughout Canada and in 29 states in the eastern, central, southwestern, and western United States[17].
Saia also competes with truckload carriers who contract entire trailers out to one customer. Competitors in this category include:
- Werner Enterprises (WERN) is one of the top 5 truckload carriers in the U.S. by revenue and moves retail and consumer goods, grocery products, and industrial parts[18].
- J.B. Hunt Transport Services (JBHT) ships forest and paper products, building materials, general merchandise, and automotive parts, and is one of the top 10 freight shippers in North America by revenue[19].
- Universal Truckload Services (UACL) is a non-asset based provider of transportation services throughout the U.S. and in the Canadian provinces of Ontario and Quebec. Truckload revenues make up roughly 59% of its revenues, brokerage services constitute 25%, and intermodal support services represent the remaining 16%[20].
- Heartland Express (HTLD) moves appliances, automotive parts, and retail goods, and focuses exclusively on the short-to-medium haul dry van market (meaning contents are mainly non-perishable)[21].
- Knight Transportation (KNX) ships consumer goods, food and beverage, and paper products, and also concentrates on the short-to-medium haul dry van market[22].
References
- ↑ 1.0 1.1 SAIA 10-K 2009 Item 7 Pg. 21
- ↑ SAIA 2007 10-K pg. 18
- ↑ 3.0 3.1 Bnet: Shippers React to UPS Move Into LTL. Retrieved on August 19, 2008.
- ↑ U.S. Department of Labor: Truck Drivers and Driver/Sales Workers. Retrieved on July 2, 2008.
- ↑ DieselNet: Emissions Standards. Retrieved on July 2, 2008.
- ↑ KNX 2007 10-K pg. 3
- ↑ WERN 2007 10-K pg. 4
- ↑ SAIA 2007 10-K pg. 34
- ↑ ERE.net: Truck Driver Slowdown. Retrieved on July 2, 2008.
- ↑ SAIA 2007 10-K pg. 6
- ↑ Con-way Website
- ↑ YRC Worldwide (YRCW) Form 10-K, Fiscal Year 2006, “Narrative Description of Business”, Page 12
- ↑ LSTR 2007 10K
- ↑ ODFL 2007 10-K pg. 6
- ↑ 15.0 15.1 FDX 2007 10-K pg. 15
- ↑ 16.0 16.1 UPS 2007 10-K pg. 5
- ↑ VTNC 2007 10-K pg. 3
- ↑ WERN 2007 10-K pg. 16
- ↑ J.B. Hunt Form 10-K, FY 2006, "Marketing and Operations", Page 6
- ↑ UACL 2007 10-K pg. 6
- ↑ HTLD 2007 10-K pg. 2
- ↑ KNX 2007 10-K pg. 14
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