Truckload Carriers Report Lower Earnings

This story appears in the Nov. 2 print edition of Transport Topics.

Eight major truckload carriers have reported third-quarter earnings, with six of them remaining profitable but at lower levels than a year ago. Revenue also declined, but some of the companies improved their operating ratios of management efficiency.

Outlooks were mixed concerning when a freight renaissance might occur, and some carriers questioned the financial soundness of some of their competitors, saying they have cut pricing beyond reason.

“The elimination of reasonable pricing in the transportation and logistics business could result in the inability of transportation providers to respond to a sharp pickup in demand, likely leading to service disruptions, significant price in-creases and more adequate returns,” Kirk Thompson, chief executive officer of J.B. Hunt Transport Services, said in his company’s Oct. 19 statement.

Hunt earned $40 million, or 31 cents a share, on quarterly revenue of $833.7 million. Three of its four main divisions were profitable, the exception being truckload. The company’s report said truckload demand had improved in August and September, compared with the second quarter.

Werner Enterprises earned $19 million, or 26 cents a share, on quarterly revenue of $429.3 million. The carrier broached the topic of low-ball pricing in its report.

“Management believes a portion of the company’s improving freight demand is caused by shippers acknowledging and adjusting to the increasing risk of relying on highly leveraged carriers. . . . Pricing remains extremely competitive, due principally to the high level of customer bid programs that occurred in the first half of 2009,” the Werner report said.

Thomas Budnik, treasurer of Tank Star USA, a privately held Milwaukee-based carrier with 650 power units, made a similar observation in an interview.

“There are lots of bankrupt carriers still in business, and they’re not always making sound decisions on rates. It’s tough to compete against that,” he said.

C.H. Robinson Worldwide, North America’s largest broker of truck freight, also experienced declining revenue from its third quarter last year, but its net income increased by 2%. Robinson could do that because its quarterly spending on purchased transportation from truckload carriers and other transportation providers fell 23.7% to $1.25 billion from $1.64 billion a year ago.

The company attributed the decline to weak demand for shipping and falling rates — mainly from lower fuel surcharges. Overall, the broker made $95.5 million, or 57 cents a share, on quarterly revenue of $1.95 billion.

Stock analyst John Larkin also discussed low truckload rates in an Oct. 21 report on Robinson’s results to clients of Stifel, Nicolaus & Co.

“While supply and demand tightened slightly in the company’s primary truckload market, smaller, financially troubled carriers still seem relatively desperate for freight and remain willing to sell their capacity to C.H. Robinson for considerably less than they have been willing to in ‘normal’ times, even though spot rates from such carriers increased slightly sequentially from the second quarter of 2009 to the third,” Larkin said.

Kevin Knight, CEO of Knight Transportation, also mentioned competitors in precarious situations.

“There continues to be evidence that many, if not most, truckload carriers are plagued with weak balance sheets, aging fleets and shrinking revenues,” he said.

“We expect the challenging truckload market to yield opportunities to continue to capture market share over time,” Knight continued. “We believe we are well-positioned to navigate the challenges of the current environment and thrive as the market improves when truckload capacity decreases and/or freight demand modestly increases.”

His company earned $13.1 million, or 16 cents a share, on quarterly revenue of $173.1 million.

Other truckload carriers reporting included Heartland Express, which earned $14.5 million, or 16 cents a share, on quarterly revenue of $113.4 million. Along with Werner, Heartland improved its quarterly operating ratio, or expenses as a percentage of revenue.

Refrigerated specialist Marten Transport Ltd. made $3.47 million, or 16 cents a share, on quarterly revenue $129.4 million.

Covenant Transportation Group lost $13.6 million, or 96 cents a share, on revenue of $153 million. The carrier did post an operating profit, but an $11.6 million noncash charge related to its investment in third-party logistics provider Transplace Inc. led to the loss.

Universal Truckload Services remained profitable but at a lower level than a year ago. The company had net income of $1.7 million, or 11 cents a share, on revenue of $128.5 million for the 13 weeks ended Sept. 26.

USA Truck posted a loss of $1.64 million, or 16 cents a share, on quarterly revenue of $96.2 million. In the same quarter last year, the company earned $2.35 million on revenue of $146.1 million.

Looking to the future, Hunt said its truckload division lessened its losses sequentially as the year has progressed. Hunt said the industry will “edge toward recovery” but also warned: “The freight economy remains weak, and we are not anticipating a rapid improvement. Consequently, until freight rates start to return to a reasonable level, margins are unlikely to improve dramatically.”