Profits at Truckload Fleets Jump, Propelled By Improving Rates

This story appears in the Jan. 31 print edition of Transport Topics.

Profits increased sharply at most of the eight publicly traded truckload carriers that issued earnings reports last week, with gains coming mostly through rate increases rather than volume growth in the uneven, but modestly growing, freight market.

Net income nearly tripled at Celadon Group Inc., jumped 44% at Heartland Express and rose 34% at Werner Enterprises Inc.

Marten Transport’s net income rose 22%, and Knight Transportation Inc. boosted its net 8%.

Covenant Transportation Group reversed a fourth-quarter loss from a year ago, and USA Truck’s loss narrowed.

Swift Transportation Co. posted a profit of $24.6 million when costs related to its recent public stock offering were excluded, compared with a loss of $21.8 million in the final quarter of 2009.

The improved results illustrated several trends highlighted in an analyst’s report.

“A consistent near-term truckload picture is developing,” analyst Ed Wolfe of Wolfe Trahan & Co. said in a Jan. 26 investor note. “Total miles, utilization and empty-mile ratios were disappointing. [Pricing] net of fuel increased more than expected. The public truckload providers are acting very disciplined into expected tightening and equipment supply shortages, but in a still lackluster truckload freight economy, this means walking away from some business.”

Celadon CEO Stephen Russell characterized the current market as “a consistently strong rate environment” with rates that rose 9.2 cents a mile.

Celadon calculates that raising rates by 1 cent a mile adds 2 cents a share to earnings, and the carrier netted $2.9 million in its fiscal second quarter, with revenue of $133.1 million.

Swift told investors on Jan. 25 that a 4-cent-a-mile rate increase would boost its operating income by $54 million. It also reported a 5.1% rise in average revenue per loaded mile, excluding fuel effects, and boosted its loaded miles by 6.2%. Swift’s revenue rose to $780.4 million.

Revenue per loaded mile rose around 5% for other carriers as well. While Swift increased its loaded miles, other fleets kept miles driven about the same.

Because diesel price averages rose 15% during the quarter, compared to the 2009 period, to reach $3.158 a gallon, fuel surcharges also climbed. Revenue from those charges climbed about 15% on average, based on surcharge data provided by all carriers except Heartland.

The combination of rate increases and fuel surcharges elevated revenue by about 20%, on average.

Werner had $24.1 million net income as revenue climbed to $463.2 million; Knight’s revenue rose to $188.3 million and Covenant showed a profit of $690,000 as revenue increased to $163.9 million.

Heartland’s profit soared to $15.4 million, as revenue increased to $129.2 million.

Marten’s profit rose to $5.2 million on revenue of $136.6 million.

USA Truck’s revenue was $122.1 million as the carrier narrowed its quarterly loss to $1.8 million.

The results at Swift were affected by $118 million in pre-tax costs related to the public offering completed in October. Including those costs, such as early retirement of debt, Swift lost $48.3 million — an improvement from the $357 million loss in the 2009 period.

Heartland highlighted both the pricing and economic trends, including rate improvements resulting from tighter industry capacity.

“However, freight volumes are still moderate in this less-than-robust economy,” Heartland said.

Several carriers also said that they expected the capacity reductions and potential benefits that Wolfe highlighted.

Werner Enterprises Inc. said in its Jan. 26 statement that “the safety regulatory landscape for the trucking industry is rapidly changing” as a result of the anticipated productivity reductions from proposed changes in hours-of-service rules announced last month.

“We anticipate that drivers and truckers will leave the market” as the federal CSA program takes effect, Werner said, and as a result of hours-of-service changes, “we anticipate that, throughout the industry, driver work hours would be reduced, causing lower driver and truck productivity.”

In its statement, Knight repeated that theme: “We expect the industry’s capacity to remain tight and to likely further tighten because of the introduction of the Compliance, Safety, Accountability program and driver hours-of-service rules.”

Celadon’s Russell said on a Jan. 26 conference call that those rule changes “will have a meaningful impact” and will result in “a significant reduction in capacity.”

Going into the first quarter, carriers said there was little sign of a freight volume pickup in the first few weeks of the year.

Asked about that trend, Swift CEO Jerry Moyes said, “January is a horrible month. It’s a typical January — no worse than last year. The [first] quarter is all about March freight [volume].”

In its statement, Werner said that “freight volumes thus far in January have shown the typical seasonal decline from the fourth quarter to the first quarter. Our freight volumes to date in 2011 have been slightly lower than those in the same period of 2010.”