Truckload Carriers Trim Fleets as Freight Declines, Fuel Rises

By Rip Watson, Senior Reporter
This story appears in the April 28 print edition of Transport Topics.
Truckload carriers are slashing capacity at the highest rate in a decade in an effort to bring supply and demand into balance as fuel prices skyrocket and demand withers, according to industry experts.
A survey by American Trucking Associations showed a 3.6% drop in capacity in January and February, which is “the largest since we began collecting the data in 1997,” said Bob Costello, ATA’s chief economist.
Among individual fleets, J.B. Hunt Transport Services, the largest publicly traded truckload operator, and Werner Enterprises both said they made year-over-year cuts of 9%.
“The main driver of reducing the fleet size, which is happening independent of trucking failures, is that there is not enough freight,” Costello said. “When a portion of their drivers leave, they aren’t being replaced.”
The cuts, coupled with 15 consecutive months of lower heavy-truck production, more overseas sales of used trucks (click here for related story) and rising company failures, could be hastening the return of equilibrium between supply and demand, analysts and trucking executives said.
“By the end of the third quarter of 2008, we believe supply and demand will be back in equilibrium, helping set the stage for a rebound in freight rates during 2009-2010,” Stephens Inc. analyst Thom Albrecht wrote in a recent report.
Albrecht said the number of excess Class 8 tractors peaked at about 90,000 last year and has been dropping since then.

Because ATA surveys fleets that are in business, the actual capacity reduction doesn’t include the effect of trucking failures. Avondale Partners analyst Donald Broughton estimated that about 42,000 tractors, or 2% of capacity, left trucking in the first quarter, when 935 companies failed — nearly all of them in the truckload sector (4-21, p. 3).
At J.B. Hunt, a 19% reduction in its traditional truckload fleet reflected longer-term demand trends, customer needs, pricing and return on investment targets, its earnings report said. Hunt’s overall fleet reduction of 9% includes changes in the size of its intermodal and dedicated fleets.
“The freight-demand softness was by far the most significant in the medium-to-long haul
van fleet, a fleet which Werner reduced by approximately 850 trucks since mid-March 2007,” the company’s first-quarter earnings statement said.
Landstar System reported a 3% drop in the number of trucks used by its owner-operators and agents committed to carrying company freight.
Some large truckload companies, such as Schneider National, are taking a different tack.
“We are up 7% in capacity with a combination of company and independent drivers,” Mark Rourke, president of transportation services at Schneider National Inc., told Transport Topics April 24.
“We play a lot less in the spot market and have more contracted freight. Independent contractors in these tough times have a flight to quality. They have to be sure they are with someone who can load them. We are going to have the capacity during the next uptick.”
Other executives noted the overall reductions, but have not cut their own fleets.
Steve Russell, chief executive officer of Celadon Group, said “capacity is shrinking drastically” in an April 17 speech at Truck World in Toronto. He cited the drop in new truck builds and fleet failures as key reasons for the capacity reduction.
But Celadon has increased its fleet 6% in the past 12 months, Russell told TT April 24, with none of those additions coming in the past nine months.
“When the market turns, we will have the capacity to handle the freight,” he said. “The reality is, don’t shake up the short-term and hurt the long-term.”
“There is significant capacity being taken out of the marketplace,” John White, executive vice president of operations for U.S. Xpress Enterprises, said at a conference in Princeton, N.J., earlier this month.
White, whose fleet isn’t being trimmed, said, “To me, we’re seeing us rapidly approaching equilibrium” between supply and demand.
When that equilibrium point will be reached isn’t yet clear, other fleet executives said.
“We still expect industrywide (truckload and refrigerated) capacity to exceed demand at least into the second quarter of 2008,” said CEO Randy Marten, Marten Transport, Mondovi, Wis., in his company’s earnings report. Chief Financial Officer Jim Hinnendael added that the company’s fleet size essentially was unchanged during the first quarter and that Marten’s reductions were made last year.
“Over time, the relationship between freight demand and trucking capacity is expected to improve,” Covenant Transport Group said in its report. “The slowdown in the freight economy over the past several months, however, makes the timeframe for an improvement in the supply-demand relationship longer than previously anticipated and uncertain.”
Werner said it expects an improvement in the supply-demand balance “over the next few quarters.”
Knight Transportation’s first-quarter report said “pricing and equipment supply continued to be negatively affected as the supply of for-hire trucks outpaced freight demand in our regional markets.”
Howard Abramson, Daniel Bearth and Dan Leone contributed to this article.