Large TL Fleets Shed Longhaul to Seek More Regional Freight
By Rip Watson, Senior Reporter
This story appears in the Aug. 11 print edition of Transport Topics.
Large truckload fleets are gaining business by shifting from marginally profitable longhaul lanes to regional trucking, which in turn is forcing smaller carriers with fewer resources to fight for that longhaul business, industry experts said.
Truckload carriers with at least $30 million in annual revenue hauled 4% more loads in the first half of 2008 than a year ago, while smaller carriers with sales below that amount have seen loads drop 6%, according to American Trucking Associations’ Trucking Activity report. The gap is widening: Larger carriers’ loads rose less than 1% last year, but smaller carriers’ loads fell 5.8%.
“Major truckload based carriers have determined that the conventional, longer-haul, irregular route business is not attractive,” said John Larkin, an analyst for Stifel, Nicolaus & Co.
These carriers prefer regional business that is more attractive from a revenue and profit standpoint, is less seasonal and less energy-intensive and uses less capital than irregular route longhaul moves.
“This movement of the major carriers into the markets formerly served by the smaller carriers effectively displaces some percentage of the smaller carriers into the longer-haul, more traditional truckload markets,” Larkin said. “These smaller carriers are ill-equipped to handle the longer-haul, more competitive markets.”
Larkin said smaller fleets with older trucks are hurt by higher operating costs and can be forced to handle “significantly unprofitable” backhauls because their sales force is small.
“Small carriers are very much in a recessionary environment,” said Bob Costello, senior economist at ATA, who said on an July 31 conference call that he agreed with Larkin’s assessment. “It’s not just fuel costs. The fact that the small carriers aren’t getting as many loads as a year ago is one of the reasons they are going out of business.”
The higher costs and unprofitable backhauls are driving the weaker, displaced smaller carriers out of business faster as they also struggle with high fuel prices and a sluggish economy, Larkin said.
A total of 970 carriers went bankrupt in the second quarter, said Avondale Partners analyst Donald Broughton, topping the 935 carriers in the first quarter and more than double the second quarter last year.
USA Truck said it was focusing on shorter trips with higher revenue, leading to a 9% drop in length of haul. Length of haul also is dropping at other carriers, including a 5% second-quarter decline at Marten Transport and 4% at Werner Enterprises.
“The short to medium dry van market, in particular, experienced increased competition from traditionally longhaul carriers that are seeking shorter loads to avoid price competition with intermodal service,” Kevin Knight, chief executive officer of Knight Transportation, said in a July 23 statement.
Intermodal has been gaining because the rising price of diesel has widened the price spread between over-the-road and intermodal, which prompted cost-conscious shippers to switch to rail-truck service, said Dahlman Rose analyst Jason Seidl.
Broughton said he believes larger fleets that are trying to move more into regional markets face some risk as they try to follow such carriers as Heartland Express and Knight, two carriers with a regional focus and industry-leading operating ratios. Larger fleets may not understand the complexity of operating in a different type of business, Broughton said.
David Schrader, vice president of business services for Transcore, said his company’s load-matching services can help smaller carriers and owner-operators who find themselves with a longhaul move but have no business relationships at the headhaul destination and no way to get a load home.
However, Schrader said that simply finding a load is not enough to make it profitable. Fleets have to understand the true costs of their operation and negotiate the right rates and fuel surcharges to fit their needs, he said.
Another reason for the larger truckload fleets’ higher volume, Costello said, is their ability to be more aggressive because their sales forces are larger. Some of the larger fleets have chosen to rely on their own brokerage units as well as intermodal to handle the longhaul freight.
