Truckload Profits Drop as Freight Supply Shrinks

By Tarun Reddy, Staff Reporter

This story appears in the April 23 print edition of Transport Topics. Click here to subscribe today.

Profits fell at five of the largest truckload carriers in the past quarter as the nation’s soft economy cut freight volumes, raising uncertainty about whether conditions would improve enough to boost results later in the year.
J.B. Hunt Transport Services, Swift Transportation, Landstar System, Werner Enterprises and USA Truck all earned less than they did in the first quarter of 2006 — in some cases, much less — and their executives all cited lower freight volumes as the main reason.
“Demand for truckload services was softer than any quarter we have experienced in several years,” said Jerry Orler, president and chief executive officer of USA Truck, where the drop in freight volume was particularly severe and led to
a 97.7% plunge in net from 2006.
Of truckload companies re-porting first-quarter results last week, only Knight Transportation and Heartland Express  showed increased profits over last year.
Several analysts said they did not expect the financial outlook for the trucking industry to improve anytime soon because there are few signs that economic activity is improving.
Rick Jordon, director of global logistics solutions at ICG Commerce, which helps shippers reduce transportation and other costs, said he was not surprised by the decline in profits among truckload carriers.
“Given the weakness in both the housing and automotive markets, we were bound to see an effect on the truckload market,” he told Transport Topics.
The first-quarter drop in truckload profits followed three years of solid growth, Jordon said. “Like most things, the truckload sector is cyclical.”
Jon Langenfeld, a trucking analyst at Robert Baird & Co., said in a research note that the “truckload industry’s headwinds stand to remain in place through much of the year, absent a meaningful pickup in economic activity.”
USA Truck said the number of loaded miles for general freight during the first quarter was nearly 51.8 million, down from 53.2 million a year ago. USA Truck, based in Van Buren, Ark., earned $80,000, or 1 cent a share, during the quarter, compared with a profit of $3.4 million, or 30 cents a share, in the same 2006 period.
J.B. Hunt, of Lowell, Ark., said it earned $44.2 million, or 30 cents a share, down from $49 million or 31 cents a year earlier. Kirk Thompson, the company’s president and CEO, said, “We experienced softer freight volumes in our truck and integrated capacity solutions segments.” He added that bad winter weather hurt all segments within the company.
Hunt’s truckload unit hauled 201,738 loads during the quarter, down 6.6% from 215,999 last year. Revenue per tractor per week was $3,439, down 3.4% from 2006.
J.B. Hunt said that shippers issued bids for new contracts “at a rate more than three times the typical amount during a first-quarter bid season.” Shippers will often seek to reopen bids for contracts in order to get lower rates from carriers.
Swift Transportation, based in Phoenix, had a 73.6% drop in profits. The company earned $10 million, or 13 cents a share, down from $37.9 million, or 50 cents a share, in 2006. Glynis Bryan, Swift’s chief financial officer, could not be reached for comment by press time.
Swift said its number of loaded miles fell 8% to 366.1 million from a year ago. The decline in loaded miles occurred even though the company had 17,934 company and owner-operator tractors, up 2.6% from 17,477 a year earlier.
Truckload carrier Werner Enterprises, Omaha, Neb., said that January “began with an unusually low level of freight demand,” and net earnings fell 28.6% to $15.7 million, or 21 cents a share, from $22 million, or 27 cents a share, in the 2006 quarter. Werner said the freight bookings were lower in each week of the quarter, compared with the corresponding weeks in the previous three years. Though the housing and automotive sectors are not primary customers for Werner, softness in these markets “caused carriers that serve these markets to compete more aggressively” for customers Werner serves.
Landstar System said the first half of the quarter featured “lower freight volumes and available capacity,” but Henry Gerkens III, Landstar’s president and CEO, said the company had pricing gains and “volume levels improved” during the second half of the quarter.
Landstar, based in Jacksonville, Fla., earned $21.6 million or 38 cents, down from $24.4 million or 41 cents a year ago.
Bucking the trend, Knight Transportation, based in Phoenix, said its first-quarter earnings increased 5% to $16.6 million, or 19 cents a share, up from $15.8 million, or 18 cents a share.
Kevin Knight, the company’s chairman and CEO, said profits increased “through a combination of fleet expansion, our asset purchase of Roads West Transportation . . . and increased revenue per mile.”
He said the company’s efforts to reduce costs helped to minimize the effects of increases in driver pay levels.
Heartland Express, based in Coralville, Iowa, earned $22.6 million, or 23 cents a share, up from $19.7 million or 20 cents a share, a year earlier. Revenue rose 6.2% while expenses increased 4.9%.
The company’s operating ratio improved to 78.1 during the quarter, compared with 79.2 in 2006. John Cosaert, the company’s chief financial officer, could not be reached for comment by press time.