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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All
 

From SCDigest's On-Target E-Magazine

- Nov. 3, 2014 -

 

Logistics News: Q3 2014 Truckload Carrier Review and Comment

 

Carriers have Good but Not Great Results in What Should Have Been a Stronger Quarter; Many Slowly at Last Adding Capacity, Though Often in Dedicated

 


SCDigest Editorial Staff

 

We're back as usual every quarter with our review of the results and comments from leading public truckload carriers, as the last of them finished up their Q3 2014 earnings reports in the last week.

SCDigest Says:

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These are small increases in fleet capacity, constrained by a lack of drivers, but hopefully for shippers indicative of a general trend, as several if not all of the carriers are increasing driver pay, in some cases substantially.
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After this week's exclusive review of the truckload sector, next week we will present similar data and analysis for less-than-truckload carriers and the four major public rail carriers.

We will also summarize full nine months of 2014 numbers and trends as well.

Our review includes tables of financial and operating results, but also select comments from each carrier that we follow from their Q3 earnings releases, which are in some cares extensive and very interesting this quarter.

In general, the carriers had OK results in what seems like should have been a stronger quarter. For example, the Cass Truckload Linehaul Index, was up a strong 7.2%, 7.0% and 6.7% year over year in the second quarter months of July through September, respectively, illustrating how the market has swung strongly in the carriers' favor.

Several of the truckload carriers reported rate gains in the 6% range, and profits for the group were up some 30% for the quarter, led by big gains at Heartland Express and Swift, though in Heartland's case that was largely the result of an acquisition.

 

Virtually every carrier also again cited a growing driver shortage as a key issue for the industry and their own fortunes, as most have done for many quarters in a row. But there was again a great sense of urgency from most this time.

 

And much of that gain in profits also came from strong growth in dedicated services, brokerage, intermodal and other business outside core truckload carriage.

 

Virtually all of the carriers with dedicated business reported strong gains there, no doubt as many shippers look to dedicated to solve growing capacity issues.

 

On truckload carriage, average operating ratios, or operating expense as a percentage of operating revenues, a key transportation sector metric, improved almost a couple of points to 88.3% from 90.1% in Q3 of 2013, a nice decrease but not enough to drive big profit growth from truckload operations.

 

The good news for shippers is that despite continue issues with recruiting drivers, many of the public carriers we follow added a bit to the tractor fleets, a change from most recent quarters. Werner went from 6974 to 7060 in the quarter. Knight said ended the third quarter with 100 additional tractors when compared to the end of the second quarter, a 2.5% increase. Swift said its consolidated average operational truck count increased more than 500 trucks year over year in the third quarter across its various reporting segments, though most of that was in dedicated as well.

 

These are small increases, constrained by a lack of drivers, but hopefully for shippers indicative of a general trend, as several if not all of the carriers are increasing driver pay, in some cases substantially.

 

But as usual that was again not the case at JB Hunt, where tractor count in its truckload segment fell again to 1843 in Q3 from 1951 in 2013.

 

Below is a table of Q3 results for our group of seven truckload carriers.

 

Q3 2014 Truckload Sector Results

 

For Quarter Ending October 31, 2014 Data in $Thousands (Meaning Werner's revenue is $551 million, for example)
Carrier Werner JB Hunt Heartland Knight Swift Marten Celadon Total Carriers
Total Operating Rev Including Fuel $551,961 $1,601,156 $217,092 $271,547 $1,074,900 171,550 $193,416 $4,081,622
Change 2013 to 2014 7.9% 11.5% 66.2% 13.5% 4.1% 2.7% 10.5% 10.6%
Trucking Revenue Net of Fuel Surcharge $334,520 $95,754 $174,892 $174,126 $460,000 $105,271 $161,650 $1,506,213
Change 2013 to 2014 4.0% -1.1% 68.3% 8.0% -0.1% 2.1% 9.5% 8.0%
Dedicated,3PL, VAS Revenue $106,490 $546,165 NA $53,703 $238,000 $40,463 $16,547  
Change 2013 to 2014 10.4% 19.7% NA 55.3% 28.9% 9.9% 25.2%  
Intermodal Revenue Included in VAS $963,568 NA NA $100,000 Included in VAS $9,240  
Change 2013 to 2014 NA 8.3% NA NA 3.6% NA 22.8%  
Net Income $25,970 $102,414 $22,737 $25,373 $50,158 $7,652 $8,048 $242,352
Change 2013 to 2014 22.2% 14.5% 43.3% 67.4% 67.5% -4.1% 22.6% 30.1%
Net Income as % of Operating Revenue (Total is Unweighted) 4.7% 6.4% 10.5% 9.3% 4.7% 4.5% 4.2% 6.3%
Net Income as % of Operating Revenue 2013 (Total is Unweighted) 4.2% 6.2% 12.1% 6.3% 2.9% 4.8% 3.7% 5.8%
Operating Ratio Truckload 88.5% 95.5% 83.3% 79.6% 87.5% 90.5% 93.0% 88.3%
Operating Ratio Truckload 2013 91.7% 99.4% 80.1% 85.6% 90.0% 90.6% 93.4% 90.1%

 

Results for the first 9 months of 2014 is shown  below. Net income for the group up just 3.5% so far this year.


(Transportation Management Article Continued Below)

 
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In general, the numbers for year to date were about the same as the Q3 results.

 

Truckload Sector Results First 9 Months 2014

 

For 9 Months Ending Oct. 31, 2013 Data in $Thousands
Carrier Werner JB Hunt Heartland Knight Swift Marten Celadon* Total Carriers
Total Operating Rev Including Fuel $1,586,103 $4,555,930 $668,358 $784,865 $3,159,200 $499,382 NA $11,253,838
Change 2013 to 2014 5.0% 10.8% 67.5% 9.1% 3.8% 1.3% NA 6.4%
Trucking Revenue Net of Fuel Surcharge $978,067 $289,297 $492,360 $506,974 $1,360,490 $304,962 NA $3,932,150
Change 2013 to 2014 2.4% -3.5% 77.1% 5.6% -0.7% 2.3% NA 0.3%
Dedicated,3PL, VAS Revenue $292,145 $1,551,461 NA $145,359 $654,776 $115,126 NA  
Change 2013 to 2014 8.1% 20.1% NA 37.6% 19.8% 0.9% NA  
Intermodal Revenue Included in VAS $2,729,731 NA NA $292,186 Included in VAS NA  
Change 2013 to 2014 NA 7.4% NA NA 7.9% NA NA  
Net Income $65,941 $264,486 $63,289 $70,721 $102,661 $20,865 NA $587,963
Change 2013 to 2014 2.1% 5.6% 15.6% 42.4% -6.8% -8.7% NA 3.5%
Net Income as % of Operating Revenue (Total is Unweighted) 4.2% 5.8% 9.5% 9.0% 3.2% 4.2% NA 6.0%
Net Income as % of Operating Revenue 2013 (Total is Unweighted) 4.3% 6.1% 13.7% 6.9% 3.6% 4.6% NA 6.5%
Operating Ratio Truckload 90.1% 94.4% 85.4% 80.2% 89.8% 91.7% NA 88.6%
Operating Ratio Truckload 2013 91.2% 97.5% 78.5% 84.2% 90.4% 91.1% NA 88.8%
*Celadon operates on a different calendar year and this was its first fiscal quarter of its year. 

 

In the section below, we break out key points made in each carrier's earnings releases, although the detail in these reports varies significantly across each carrier, but Werner as usual led the way with extensive comments.

 

Werner

Company said that freight demand continued to be strong in third quarter 2014, as it was in second quarter 2014. Freight demand (as measured by Werner's daily morning ratio of loads available to trucks available) showed consistent strength, and the carrier was overbooked (more available freight than available trucks at the beginning of each business day) throughout third quarter 2014.

The freight market dynamics began showing year-over-year improvement for Werner in mid-November 2013, and that favorable trend has continued for the last eleven months, including the first three weeks of October.

A tight capacity market combined with a gradually firming economy were the primary contributing factors, Werner said.

"Truck capacity is being challenged by an increasingly competitive driver market, trucking company failures and heightened regulatory cost increases for truck ownership and safety; thus, we expect this favorable demand trend relative to constrained supply will continue," the company noted.

Average revenues per tractor per week, net of fuel surcharge, increased 7.4% in third quarter 2014 compared to third quarter 2013, indicating a strong rate environment.

"Rate increases for contractual business, continued focus on securing driver friendly, highly productive freight and improved freight selection using our proprietary freight optimization system enabled us to raise our average miles per truck by 5.3% and further reduce our empty miles percentage by 2.2% compared to third quarter 2013," Werner said.

Average revenues per total mile, net of fuel surcharge, increased 2.0% in third quarter 2014 compared to third quarter 2013.

A few large customers modified their fuel surcharge programs to a "zero peg" in the last 12 months, which shifted revenues from base rates to fuel surcharges.

Werner said it made good progress implementing sustainable rate increases with its customers during third quarter 2014.

"These efforts are expected to continue as we move forward and work to recoup the cost increases associated with more expensive equipment, a shrinking supply of qualified drivers and an increasingly challenging regulatory environment," Werner added. "Strategic customers understand the collective capacity and service challenges facing our company and our industry and are increasingly supportive of Werner's ongoing initiatives to provide sustainable transportation solutions in support of their supply chain needs."

In third quarter 2013, Werner averaged 6,974 trucks in service in the Truckload segment and 50 intermodal drayage trucks in the VAS segment. It ended the quarter up a bit, with 7,060 trucks in the Truckload segment and 55 intermodal drayage trucks in the VAS segment. Its Specialized Services unit, primarily Dedicated, ended the quarter with 3,655 trucks (or 52% of our total Truckload segment fleet).

Werner said again that driver recruiting and retention market was very difficult during Q3. During July and the first half of August, its driver and truck counts declined from June.

"We increased pay by varying percentage amounts for many drivers in certain fleets within our One-Way Truckload unit in mid-August 2014. Following these changes, our driver recruiting and retention metrics improved," Werner notes.

Additionally over the last several months, Werner has increased driver pay in multiple dedicated fleets, almost always after obtaining rate increases from these customers.

However, it said significant problematic market factors remain including a declining number of, and increased competition for, driver training school graduates, a gradually declining national unemployment rate and job competition from the housing construction, manufacturing and hydraulic fracturing markets.

JB Hunt

Said it was able to implemented strong rate increases in Dedicated Contract Services.

Intermodal volumes increased 8% over the same period in 2013 in an environment of challenging rail service and limited dray fleet capacity. Its Eastern network growth was 19% and transcontinental growth was 2% over the third quarter 2013.

Hunt said that slow train speeds and the shortage in dray fleet capacity continues to impact network "fluidity," resulting in decreased box turns and decreased dray fleet utilization compared to third quarter 2013.

The straight truckload segment continues to decline. At the end of Q3, its truckload segment operated 1,843 tractors compared to 1,951 a year ago. But it was able to achieve an average 6% rate increase with core customers.

Hunt's truckload segment now accounts for just 6% of revenues and 2% of operating income.

Heartland Express

Company said that freight demand continued to be strong throughout the quarter as it experienced above normal volumes of freight across the entire United States.

All regions of the country were strong, with some like the West Coast being extremely overbooked.

Loads turned down throughout the quarter were the highest the company has seen since before the recession.

Revenue jumped 66% in Q3 as a result of its acquisition of Gordon Trucking in November, 2013.

Knight Transportation

On October 1, 2014 Knight Transportation announced that it acquired 100% of the outstanding stock of Barr-Nunn Transportation/

''During the quarter we improved our revenue, excluding fuel surcharge 16.3%, while improving our consolidated operating ratio by 510 basis points," Knight said.

The carrier ended the third quarter with 100 additional tractors when compared to the end of the second quarter, a 2.5% increase. It expects to continue to grow its fleet to bring on additional capacity to meet customer demand.

"But, Despite a strong freight environment, the current shortage of qualified driving associates has been a headwind for adding additional capacity. Our driver development and training programs remain a primary focus area for our management team," Knight said.

It added that "Although market conditions are favorable for truckload carriers, the industry continues to be faced with multiple challenges that have led to higher costs, including rising driver pay, increased regulation, additional maintenance cost associated with the 2010 EPA emission engines, and rising equipment cost."

Knights said its brokerage business was up 91% in Q3..

Swift

Swift said its consolidated average operational truck count increased more than 500 trucks year over year in the third quarter across its various reporting segments

Truckload pricing increases continue to gain momentum, resulting in a 5.1% increase per loaded mile compared to the third quarter of 2013 net of fuel surcharge.

Dedicated revenue net of surcharge grew 31.7% from the third quarter of 2013 to the third quarter of 2014, driven by the addition of multiple new customer contracts over the past 12 months

Swift notes that "As we reported in our press release on September 25th, we are pleased by the driver response to the various initiatives we have implemented over the past several months, all of which have been designed to "Deliver a Better Life" for our drivers and their families. We believe drivers will remain a key focal area for the entire industry as we move into the fourth quarter and 2015 - and one we expect to monitor closely."

Swift said it implemented various strategies in the third quarter of 2014 to improve its recruitment and retention of drivers, including a significant increase in driver pay combined with more driver friendly initiatives and enhanced driver interaction.

Swift made a deliberate shift in equipment from truckload to dedicated to facilitate the tremendous growth it is seeing in the latter segment.

Marten

Marten increased its average truckload tractors by 70 tractors in the third quarter over this year's second quarter despite what is called "challenging driver recruiting and retention issues across our industry."

It said the increase was a direct result of its continuing efforts to increase its dedicated services and to appropriately compensate its drivers for their non-driving detention time.

Company added that costs associated with rail service interruption and delay issues continue to constrain its intermodal operations.

Celadon

Freight revenue, which excludes fuel surcharges, increased 11.1% to $157.7 million in the 2015 quarter from $142.0 million in the 2014 quarter. Net income increased 21.2% to $8.0 million in the 2015 quarter from $6.6 million for the same quarter last year.

Average seated line-haul tractors rose to 3,255 in Q3 from 3,024 in 2013.

Average revenue per loaded mile increased to $1.633 per mile in the September 2014 quarter from $1.597 in the September 2013 quarter, up 2.2%.

Any reaction to our Q3 2014 truckload segment review? Let us know your thoughts at the Feedback button (for email) or section (for web form) below.

 


   
 

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