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From SCDigest's On-Target E-Magazine

Aug. 1 , 2011

Logistics News: US Truckload Carriers Enjoy Mostly Strong Second Quarter, but as Usual Recently, Logistics and Intermodal Lead the Way

Carriers Say Capacity Discipline Key to Improved Rates and Utilization; Driver Shortage Getting Worse

SCDigest Editorial Staff

Truckload carriers in the United States enjoyed generally strong results in the second quarter, according the earnings reports filed by public company truckers in recent weeks.

As has been the trend for years, many of the carriers saw more strength in brokerage, logistics and intermodal operations than in core truckload carriage.

SCDigest Says:

Heartland noted that its operating results were negatively impacted by "tight driver availability" and that it is "challenged by the shrinking pool of qualified drivers."

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As shown in the table below, overall operating revenue for the eight public carriers analyzed by SCDigest rose by double digits in Q2, but those gains are a little deceptive. Fuel surcharge revenue accounted for a good portion of that increase for those more focused on traditional TL carriage, and those with strong logistics services offerings saw much of their overall growth there.

JB Hunt once again serves a prime example, where traditional carriage revenue rose only 4.3% in Q2, versus 18.3% and 28.6%, respectively, in its Dedicated/Logistics and Intermodal units. Similarly, Werner saw only a 2.2% gain in its core truckload operations, versus a 11.1% rise in Dedicated and other logistics-related services.

Its dedicated and intermodal businesses "once again revealed a higher degree of resiliency than that of traditional, full truckload transportation models,” said John Roberts, JB Hunt's President and CEO.

Comparisons across carriers and these different business lines can sometimes be challenging because truckers report their numbers differently and often classify these services differently. JB Hunt, for example, provides quite a bit of data on each of its lines of business, whereas others lump all non-core trucking data into just one segment.

Marten Transport bucked the trend a bit, seeing its core carriage revenues up more than 11%, which the company says was achieved from a combination of having more trucks on the road and more revenue achieved per truck.

The profit picture improved for almost everyone, with more than 20% gains for seven of the eight carriers analyzed (Knight Transportation, with earnings up just 4.2%, was the exception). Swift Transportation swung from a $23 million loss in Q2 2010 to a $19 million dollar profit in 2011, while Celadon saw its profit more than double. Werner saw profits rise more than 30% on revenue gains of just 11%.

Q2 and Year to Date Truckload Carrier Results

Source: Company Releases, SCDigest Analysis

The number are much the same on a year to date basis, as also shown in the chart (note: Celadon ended its fiscal year in June and so reported full year numbers rather than six month data.

In comments accompanying the earnings releases, several of the carriers noted continued discipline in the industry in terms of fleet capacity was a big part of the improving financial equation.

For example, Werner noted that "We continue to believe that favorable truckload trends are caused to a greater degree by industry capacity constraints than economic recovery." It said it saw relatively weak demand in April and May, but some volume recovery in June.

It added that "Capacity in our industry remains constrained by both economic and safety/regulatory factors. From 2007 to 2010, the number of new trucks purchased was well below historical replacement levels for our industry. This led to the oldest average industry truck age in 40 years by the end of 2010."

Henry Gerkens, Landstar's CEO, added that he "would characterize the overall second quarter freight environment as a little choppy, but moving in an upward direction."

The capacity balance let to a somewhat more favorable rate environment in the quarter, several of the carriers said. Celadon, for example, said rates were up 4% in the quarter.

(Transportation Management Article Continued Below)

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"Our average revenues per total mile increased 3.1% in second quarter 2011 compared to second quarter 2010. Contractual rate increases and a better freight mix were the principal reasons for the rate improvement," noted Warner. Other carriers also said the relatively tight capacity enabled them to be more selective on what freight tenders they accepted in the quarter.

Several of the carriers said finding and retaining drivers was a growing challenge.

Heartland noted that its operating results were negatively impacted by "tight driver availability" and that it is "challenged by the shrinking pool of qualified drivers."

Knight observed that "Driver availability remains tight across the industry."

Other news of note from the carriers:

Werner said that it "remained committed to maintaining our fleet size at approximately 7,300 trucks," rather than adding capacity, hoping to increase revenue opportunities instead by further optimization of its network to increase utilization.

All of the carriers commented on the impact of rising fuel prices, with Knight noting that "The U.S. National Average Diesel Fuel price per gallon for the second quarter increased 32.6% to $4.017 from $3.029 for the same period of 2010."

Knight is trying to mitigate the impact "through an intense focus on reducing idle time, managing out of route miles, and improving the driving habits of our driving associates." Several other carriers mentioned similar programs.

Marten is improving its bottom line by significantly changing its go-to-market strategy.

“Our continued profitability reflects the success of our transformation into a multi-faceted business through our focus on our logistics business and expansion of our regional operations," the company says. To that end, Marten has increased its regional operations to 60.7% of its truckload fleet, up from 40.4% a year ago, quite a change in just one year.

In Q2, Celadon saw its most profitable quarter in terms of earnings per share since 2006. Part of that improvement again came from more asset discipline, with the company saying it has reduced its fleet of trailers to approximately 8,200, compared with 9,852 in the June 2010, a drop of 17%.

All told, however, the trucking business continues to be a low margin one, with most carriers having net income at best in the mid-single digits as a percentage of operating revenue, and in some cases the low single digits. That said, those numbers would be somewhat better if fuel surcharge revenue was taken out of the top line, assuming that today carriers at best break even on those surcharges.

Heartland as usual is the exception, with net profits that fall in the low to mid-teen percentages versus operating revenue.

Next week, we will look at rail carrier and LTL segment results for Q2.

Anything surprise you in these second quarter results for the TL carriers? Or their comments? Let us know your thoughts at the Feedback button below.

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