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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All

From SCDigest's On-Target E-Magazine

Feb. 29, 2012

Logistics News: Truckload Carriers Again Enjoy a Solid Q4 and Full 2011, Our Exclusive Analysis Shows

Good 2011 Continues on in Q4, with Asset Discpline Remaining the Key to Higher Rates and Profits; Swift Lowers Deadheading and Adds EOBRs

SCDigest Editorial Staff

From being one the most beleaguered industries around in 2008 and 2009, truckload carriers have mostly been on a roll starting some time on 2010 and continuing on through 2011.

SCDigest Says:

Werner says it "continues to believe that favorable truckload demand trends are caused to a greater degree by supply side constraints limiting truckload capacity, as compared to growing demand generated by increased economic activity."

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Once again, SCDigest has analyzed the financial results and market comments released near the end of January from a number of leading publicly traded TL carriers announcing results for Q4 2011 and the full year. That analysis obviously leaves out a few large carriers such as Schneider National, which is privately held.

Next week, we'll look at LTL and rail carriers.

The story is much the same in the truckload sector for both the quarter and the full year: gradually rising freight volumes combined with strong asset discipline on the part of the carriers (in some cases caused in part by the on-going driver shortage) has led to increases in rates and the ability to be more choosy about what freight to haul, resulting in significant improvements in operating ratios and total profits.

In Q4, for example, as shown in the chart below, revenues in Q4 for the full group were up 14.8%, including fuel surcharges, which account for about one-third of that increase.

Profits were up strongly over Q4 2010 for everyone but Heartland, including a jump at Swift from a loss of $48 million to a profit of $36 million in Q4 of 2011 - quite an improvement.

Operating ratios (operating expense as a percentage of operating revenues) continued to move downward, decreasing 1-2 percentage points for virtually all carriers that provide this metric (we looked only at regular truckload carriage ratios, not dedicated services, brokerage, etc.). Most now range from about 80% to the upper 80s - a far cry from the 90+% the industry has often seen.

The carriers also in general are seeing much faster growth in their other businesses beyond pure line haul operations, such as dedicated carriage, logistics services, brokerage, etc., though we will note it is difficult to make clear comparisons because how each carrier reports this revenue is different.

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JB Hunt yet again saw incredible growth in its intermodal business, which rose about 24% to almost $729 million. It's bound to slow down sometime, but shows no signs of that fatigue yet, as Hunt said its intermodal load volume grew 17% during the quarter, compared with 13% growth in Q4 2010 (yet revenues were up even more at 24%).

That included growth in its Eastern network intermodal loads of an astounding 35%, while transcontinental growth showed a 9% improvement during the quarter.

(Transportation Management Article Continued Below)

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As noted above, the full year story tells much the same tale, with total revenues including fuel surcharges rising for all but Heartland somewhere between 10-20%.

Full year profits were up strongly as well, as much as 30% in the case of Landstar, and about 28-30% for Werner and Hunt. Swift again swung from a loss in 2010 of $125 million to a full year gain of $90 million - and $215 million swing.

It's worth noting, for example, that full year profits at Werner were up 28.4% on growth in its core truckload revenues of just 1.8%.

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Asset Discipline is the Key for Carriers

Despite overall improving conditions, including an ATA freight index that says overall tonnage grew 5.8% in 2011, fleet sizes hardly budged during the year. JB Hunt's truckload carriage fleet, for example, stayed almost perfectly flat, ending the year where it started at about 2585 tractors.

Werner says it "remains committed to maintaining our truck count at approximately 7,300 trucks," and observed that it "continues to believe that favorable truckload demand trends are caused to a greater degree by supply side constraints limiting truckload capacity, as compared to growing demand generated by increased economic activity."

Werner added that it does "not believe that industry fleet growth is occurring, as some carriers are already struggling to finance the replacement truck upgrade due to the large pricing gap between the significantly increased costs of EPA-compliant new trucks compared to the lower value of record-old trucks. For example, the average cost of new trucks purchased in 2011 is approximately 30% higher than the average cost of trucks being sold in 2011."

Most of the carriers noted that this asset discipline that has swung the supply and demand balance much more in their favor not only allows higher rates (which appeared to average about a 4% increase during the year), but also allows them to be a lot more choosy in what freight they take, ditching unprofitable lanes or customers. That luxury is among the key factors in the decline in operating ratios.

Swift noted its continued payoff from efforts to reduce deadhead miles, saying the percent of the total has now dropped to just 11.7% on 2011 from 13.2% in 2009, the result in large part from better modeling of its network.

Swift also said it has installed Electronic On-Board Recorders (EOBRs) in more than 12,000 of its 15,000 total tractors, including its own fleet and independents (a total that again was flat for the year). The carrier said that among the capabilities this will bring is the delivery of streaming video though the EOBRs for training purposes. say for drivers that are showing excessive fuel usage.

Next week: LTL and rail carriers.

Any reaction to our Q4 and full year LTL review? Is this sort of data and information useful to you (i.e., should we continue?). Let us know your thoughts at the Feedback button below.

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