Truckload Rates Fall in 1Q

This story appears in the May 11 print edition of Transport Topics.

Truckload rates continued their downward slide during the first quarter, and there is no sign recession-driven levels of intense competition, weak demand and excess capacity are abating, carriers and industry analysts said.

“There was tremendous rate pressure in the first quarter, and blended rates [contract and spot] dropped 3% to 5% in the first quarter and will be down 4% to 7% in the second quarter,” Stephens Inc. analyst Thom Albrecht told Transport Topics on May 5.

Even Knight Transportation, one of only two freight companies to achieve year-over-year earnings growth, noted the tough battles over rates.

“Price competition remained intense during the quarter,” CEO Kevin Knight said in a statement.

The latest signal of market weakness was the May 4 freight index publication by Cass Information Systems Inc., which processes $17.5 billion of freight bills a year. It showed a 3% drop in shipments in April from March, which followed a similar monthly decline from February to March.

Those worsening trends are aligned with the latest American Trucking Associations tonnage index, which fell 4.6% in March from February.

“Weak freight demand, excess tractor and trailer capacity in the truckload industry and significant rate pressure from customers and freight brokers led to an approximately 8.2% reduction in freight revenue per tractor per week,” said David Parker, CEO of Covenant Transportation Group, where rates per loaded mile excluding fuel surcharge fell 3.7%.

Rates per loaded mile also fell at six other publicly traded truckload carriers.

Knight and Marten Transport, the only other freight company that achieved higher first-quarter earnings, were able to raise revenue per loaded mile among publicly traded carriers, along with USA Truck and P.A.M. Transportation.

“I don’t view those as rate increases,” Albrecht told TT. “Those were reported average rates and overwhelmingly reflected [freight] mix changes, especially significant drops in length of haul. Length of haul dropped 7% to 10% in many cases.”

He said rates per mile typically are higher as shipment distance is shortened.

Shorter hauls also mean lower revenue. For example, if a carrier has a reported rate of $1.52 a mile — instead of $1.50 a mile — for a trip that is shortened by 7% from 600 miles to 558 miles, it would collect revenue of $842.16 instead of $900, a reduction of more than 6%.

USA Truck cut length of haul by 11% and raised its revenue per mile 3%. Weak demand pushed USA Truck’s revenue down almost 15%, though the company narrowed its overall loss.

Knight shortened its average trip by 9%, and Marten moved its average truckload shipment 7% fewer miles.

P.A.M. doesn’t report length-of-haul data.

Knight and Marten had two of the lowest operating ratios in the truckload group at 85.4 and 94.1, respectively, as each company improved by at least two percentage points. Heartland Express Inc. had the best operating ratio at 83.4, improving more than three percentage points.

Although Heartland doesn’t re-lease rate data, the company clearly felt the market pressure as its revenue declined 23%.

“There continues to be excess capacity in the market, and this, combined with declines in overall freight demand, continued to place extreme pressure on freight rates throughout the quarter,” Heartland’s earnings announcement said. “Further, the company has not seen any strong indicators of improvements in the demand for freight services.”

Other companies that noted similar trends in their first-quarter reports included Werner Enterprises Inc., USA Truck Inc. and Landstar System Inc.

Less-than-truckload carriers were hurt by rate pressure even more than truckload operators, as prices per hundred pounds of freight, including fuel surcharge, fell 7% (5-4, p. 32).

Analysts said they expect the struggles likely to continue in the months ahead.

“Despite increased reported signs that the general economy and sentiment have not only stabilized but have recently begun to improve, most freight signs point to continued deterioration of demand,” said Ed Wolfe, founder of Wolfe Research, citing lower rail, ocean and air freight shipments as well as weak trucking demand.”

“Weak freight demand and excess truck capacity drove truckload rates lower,” said an analyst report by Justin Yagerman of Wachovia Securities, who noted a first-quarter decline both on a year-over-year basis and from month to month.

March dry van prices declined 3%, refrigerated rates fell 2% and flatbed rates dropped 1%, while February-to-March prices fell 1.4% for dry van, 1.4% for refrigerated and 1.3% for flatbed, he said, citing statistics from TransCore, a freight information service.

Yagerman said he expects the sequential rate decline to continue unless there is an improvement in the economy because recently renegotiated shipper-carrier contracts contain rate reductions.