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WIKI ANALYSIS
Saia, Inc. (SAIA) is a 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. Companies also 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 is roughly the seventh largest LTL firm in the U.S. based on revenue[1].
From 2004 to 2007, Saia averaged ~14.8% annual revenue growth[2]. It even managed a 5.6% increase in revenue to $1.03B in the tough economic year of 2008, although this was mainly due to higher fuel surcharges and increased haul length[3]. Saia’s operating ratio generally hovers in the 93% to 96% range, with the exception of 2008 where it jumped to 101% because of a $35.5M goodwill impairment charge (the industry considers a ratio of around 80% to be very good)[3]. 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 2008, Saia’s revenue per hundredweight was $11.61, total tonnage was 4.44 million pounds, and total number of shipments was 6.81 million[4]. For the same year, Vitran (VTNC) and Old Dominion Freight Line (ODFL), Saia’s nearest competitors in the LTL segment in terms of revenue, had revenue per hundredweight of $10.22 and $13.88, total tonnage of 5.98 million pounds and 5.55M pounds, and total shipments of 3.93 million and 6.69 million, respectively[5][6].
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[7]. Another concern is volatile fuel prices. Despite a rapid decline in diesel prices in the fourth quarter of 2008, rising fuel costs in the first three quarters caused Saia’s fuel expense to increase by $45.9M in 2008[8]. 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[7]. Saia provides its trucking services in 34 states in the South, West, Midwest, and Pacific Northwest[9]. 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[10]. At the end of 2008, Saia’s freight network consisted of 147 service facilities[9]. The firm’s average shipment for the year weighed around 1,303 pounds and traveled an average distance of 680 miles[9]. None of Saia’s approximately 7,700 employees is represented by a union[9].
Business Financials
Saia’s growth has come mainly from acquisitions (the company has completed three since 2004, the latest in February of 2007)[7]. Revenues totaled $1.03B in 2008, a 5.6% increase from 2007[2]. This growth stems primarily from improvements in yield (revenue per hundredweight) due to higher fuel surcharges and increased haul length[3]. Operating income decreased from $38.2M in 2007 to negative $9.9M in 2008[2]. This drop resulted chiefly from a $35.5M goodwill impairment charge based on a sustained decline in the firm’s market capitalization as a result of deteriorating macroeconomic conditions and illiquidity in the credit markets[3]. Without this charge Saia’s 2008 operating income would have been $25.7M[3]. 2008 operating results were also affected by volume declines due to the weak economic environment, especially in the fourth quarter when LTL tonnage was down 4.7% from a year ago[11]. The resulting overcapacity led to increased price competition. Saia’s operating costs were 7.1% higher in 2008 (excluding the impairment charge) thanks in large part to higher fuel prices in the first three quarters of the year[8]. Fuel expense increased by $45.9M in 2008[8]. On the up side, Saia generated $71.3M in cash from operating activities in 2008, compared to $46.3M in 2007[11]. The company had no borrowings on its credit agreement and cash reserves totaling $27.1M at the end of 2008[11].
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[7]. When demand slows, asset-based trucking firms like Saia experience declining margins until they can adjust their capacity. Although the firm’s revenues were up 5.6% in 2008, the increase was primarily due to higher fuel surcharge revenue and haul length[3]. Excluding the $35.5M goodwill impairment charge, Saia’s operating income fell by roughly 33% in 2008, mostly as a result of volume declines attributable to the weak economic environment[2]. 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
Saia’s operating costs were 7.1% higher in 2008 (excluding the impairment charge) thanks in large part to higher fuel prices in the first three quarters of the year [8]. 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. In 2008, any boost to Saia’s fuel surcharge revenues was more than counterbalanced by declines in volume and cost increases in other areas like maintenance and depreciation[8]. The company’s fuel expense increased by $45.9M in 2008[8].
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[14]. 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[14].
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[15]. And in 2002, the Environmental Protection Agency instituted new guidelines designed to reduce diesel truck emissions by 2010[16]. 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[17]. 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[18]. Saia’s policy is to replace its tractors after 8 to 10 years[19].
Saia’s Business Model Depends on Maintaining its Non-Union Workforce in a Competitive Driver Market
Even with the economic downturn of 2008, competition for qualified drivers within the trucking industry has been high. According to the American Trucking Association, the trucking industry faced a national shortage of 20,000 drivers in 2007, a number that will swell to 111,000 by 2014 [20]. 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[21]. 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 [22].
- 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[23].
- 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[24] .
- Old Dominion Freight Line (ODFL) is the sixth largest less-than-truckload (LTL) firm in the U.S. based on revenue[1] 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[25]. FedEx's share of the regional LTL market is now about 12%, the largest in the market[25].
- UPS Ground Freight is the freight arm of UPS’s, formed in 2005 when the company acquired Menlo Worldwide Forwarding and Overnite Transportation[26]. In 2007, UPS Freight, Supply Chain Solutions, and other auxiliary businesses generated $8.4 billion, or 17% of UPS's revenue[26].
- Vitran (VTNC) provides freight services throughout Canada and in 29 states in the eastern, central, southwestern, and western United States[27].
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[12].
- 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[28].
- 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%[29].
- 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)[30].
- Knight Transportation (KNX) ships consumer goods, food and beverage, and paper products, and also concentrates on the short-to-medium haul dry van market[31].
Market share figures assume trucking industry revenue of $357.7B in 2006[32]. Several of the listed companies earn a portion of revenues outside of transporting goods, such as warehousing and logistics. These instances usually account for less than 10% of the total sales.
Note: A parenthesis around the figure indicates a negative number, i.e. (5.4%) is a decrease of 5.4%.
| Company | Revenue (billions USD) | Net Income (millions USD) | 1 Year Sales Growth | Operating Ratio | # of Tractors | # of Trailers | Market Share |
|---|---|---|---|---|---|---|---|
| Saia (SAIA) | $1.0[33] | $18[33] | 11.6%[33] | 96.1%[33] | 3,579[34] | 11,449[34] | 0.3%[33] |
| YRC Worldwide (YRCW) | $9.6[35] | ($638)[35] | (3.0%)[35] | 97.6%[35] | 26,137[36] | 86,462[36] | 2.7%[35] |
| FedEx Freight | $4.6[37] | 25.8%[37] | 89.9%[37] | 59,000 (tractors and trailers)[38] | 1.0%[37] | ||
| Conway Inc (CNW) | $4.4[39] | $147[39] | 3.9%[39] | 94.0%[39] | 45,378 (tractors and trailers)[40] | 1.2%[39] | |
| J.B. Hunt Transport Services (JBHT) | $3.5[41] | $213[41] | 4.9%[41] | 75.7%[41] | 10,308[42] | 60,614[43] | 1.0%[41] |
| Landstar System (LSTR) | $2.5[44] | $110[44] | (1.1%)[44] | 92.8%[44] | 8,603[45] | 14,333[45] | 0.7%[44] |
| UPS Ground Freight | $2.1[46] | 8.0%[46] | 0.6%[46] | ||||
| Werner Enterprises (WERN) | $2.1[47] | $75[47] | (0.5%)[47] | 93.4%[47] | 8,250[18] | 24,855[18] | 0.6%[47] |
| Arkansas Best (ABFS) | $1.8[48] | $57[48] | (2.4%)[48] | 95.0%[48] | 0.5%[49] | ||
| Old Dominion Freight Line (ODFL) | $1.4[50] | $72[50] | 9.5%[50] | 90.7%[50] | 5,016[51] | 19,513[51] | 0.4%[50] |
| Universal Truckload Services (UACL) | $0.7[52] | $18[52] | 6.0%[52] | 95.9%[52] | 36,000[53] | 2,900[53] | 0.2%[52] |
| Vitran (VTNC) | $0.7[54] | $14[54] | 30.4%[54] | 96.6%[54] | 0.2%[54] | ||
| Heartland Express (HTLD) | $0.6[55] | $76[55] | 3.5%[55] | 78.1%[55] | 0.2%[55] | ||
| Knight Transportation (KNX) | $0.6[56] | $63[56] | 5.8%[56] | 83.0%[56] | 3,527[57] | 8,809[57] | 0.2%[56] |
References
- ↑ 1.0 1.1 ODFL 2007 10-K pg. 6
- ↑ 2.0 2.1 2.2 2.3 SAIA 2008 10-K pg. 18
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 SAIA 2008 10-K pg. 19
- ↑ SAIA 2008 10-K pg. 21
- ↑ ODFL 2008 10-K pg. 16
- ↑ ODFL 2008 10-K pg. 20
- ↑ 7.0 7.1 7.2 7.3 SAIA 2007 10-K pg. 3
- ↑ 8.0 8.1 8.2 8.3 8.4 8.5 SAIA 2008 10-K pg. 22
- ↑ 9.0 9.1 9.2 9.3 SAIA 2008 10-K pg. 3
- ↑ SAIA 2007 10-K pg. 4
- ↑ 11.0 11.1 11.2 SAIA 2008 10-K pg. 20
- ↑ 12.0 12.1 WERN 2007 10-K pg. 16
- ↑ SAIA 2007 10-K pg. 18
- ↑ 14.0 14.1 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
- ↑ 18.0 18.1 18.2 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
- ↑ 25.0 25.1 FDX 2007 10-K pg. 15
- ↑ 26.0 26.1 UPS 2007 10-K pg. 5
- ↑ VTNC 2007 10-K pg. 3
- ↑ 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
- ↑ UACL 2007 10-K pg. 4
- ↑ 33.0 33.1 33.2 33.3 33.4 SAIA 2007 10-K pg. 13
- ↑ 34.0 34.1 SAIA 2007 10-K pg. 12
- ↑ 35.0 35.1 35.2 35.3 35.4 YRCW 2007 10-K pg. 17
- ↑ 36.0 36.1 YRCW 2007 10-K pg. 4
- ↑ 37.0 37.1 37.2 37.3 FDX 2007 10-K pg. 47
- ↑ FDX 2007 10-K pg. 14
- ↑ 39.0 39.1 39.2 39.3 39.4 CNW 2007 10-K pg. 18
- ↑ CNW 2007 10-K pg. 12
- ↑ 41.0 41.1 41.2 41.3 41.4 JBHT 2007 10-K pg. 15
- ↑ JBHT 2007 10-K pg. 7
- ↑ JBHT 2007 10-K pg. 16
- ↑ 44.0 44.1 44.2 44.3 44.4 LSTR 2007 10-K pg. 18
- ↑ 45.0 45.1 LSTR 2007 10-K pg. 4
- ↑ 46.0 46.1 46.2 UPS 2007 10-K pg. 20
- ↑ 47.0 47.1 47.2 47.3 47.4 WERN 2007 10-K pg. 16
- ↑ 48.0 48.1 48.2 48.3 ABFS 2007 10-K pg. exhibit13
- ↑ ABFS 2007 10-K pg. 9
- ↑ 50.0 50.1 50.2 50.3 50.4 ODFL 2007 10-K pg. 17
- ↑ 51.0 51.1 ODFL 2007 10-K pg. 5
- ↑ 52.0 52.1 52.2 52.3 52.4 UACL 2007 10-K pg. 21
- ↑ 53.0 53.1 UACL 2007 10-K pg. 3
- ↑ 54.0 54.1 54.2 54.3 54.4 VTNC 2007 10-K pg. 10
- ↑ 55.0 55.1 55.2 55.3 55.4 HTLD 2007 10-K pg. 13
- ↑ 56.0 56.1 56.2 56.3 56.4 KNX 2007 10-K pg. 14
- ↑ 57.0 57.1 KNX 2007 10-K pg. 4
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