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Supply Chain News: Yet Another Soft Quarter for US Truckload Carriers in Q1, as Volumes, Rates Remain Weak

 

Profits for Our Group of Six Carriers Down 18.6%, as Swift Says Industry "Continues to be Plagued with Excess Capacity"

May 10, 2017
SCDigest Editorial Staff

Continuing a more than year-long trend, Q1 was again a very soft quarter for US truckload carriers, as nearly all of them cited weakness in volumes and rates, with profits for the group of six carriers we follow down 18.6% year-over-year as a group, though results varied dramatically across individual carriers.

As usual, we begin our quarterly review of results and trends across various freight transportation modes, startng this week with the truckload carriers, followed next by the rails carriers and then the less-than-truckload sector the week after that.

Supply Chain Digest Says...

Concerns about the driver shortage were still there as usual, but somewhat more muted than in recent periods overall.

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Virtually each carrier cited weak freigh volumes in the quarter, especially in the first two months, with some saying the market got stronger in March and into April.

The American Trucking Associations' Freight Tonnage Index was basically flat in Q1, up just 0.2% versus 2016, as a comparison point.

But some carriers saw it weaker than that. Marten Transport, for example, cited "the continuing challenge of an unfavorable freight environment" in its Q1 earnings report.

 

Naturally, low volumes kept rates low for most shippers. That was supported by data from the Cass Linehaul Index, which measures US per mile truckload rates before fuel surcharges and other accessorials. The index was down 0.3%, 0.8% and 0.9% in January, February and March, respectively, making it an incredible 13 straight months of year-over-year declines.

 

JB Hunt noted that customer contract rates were down 1.5% compared to the same period in 2016 in its truckload segment.

 

The big news in the sector in Q1- actually in early April - was that Knight Transportation and Swift will be merging, with the new company to be called Knight-Swift Transportation and have $5 billion in annual revenues. Both companies are based in Phoenix. The deal is expected to close in Q3.

 

All of the carriers we follow were again profitable in the quarter, but Swift just barely, with profits down 83% in Q1. Net margins (net income as a percent of revenues) ranged from 10.8% at Heartland Express to just 0.5% at Swift.

 

In aggregate, profit margins fell across all seven carriers from 6.9% in Q1 2016 to 5.2% this year in our unweighted average.

 

Average operating ratios, or operating expense divided by operating revenue, a key transport sector metric, rose sharply in Q1, from 89.0% on average for the group in Q1 2016 to 91.8% in this latest period, driving the fall in profits.

 

The full table of results from our carrier group is provided below.We'll note after a brief return last quarter Celadon is again not in our data table for Q1, as it has not issued its earnings report yet amid an accounting scandal that is causing it to restate its earnings for a number of previous quarters. The issues are apparently not related to its core truckload freight business but rather a truck leasing segment that was taken off its official books as part of a dubious joint venture.

 

It appears likely Celadon will be delisted from the New York Stock Exchange as a result of the mess.

 

We will also note that total revenues for our carrier group were up 4.9%, but that was largely a reflection of a sharp increase in fuel surcharge revenues, with diesel prices up some 50 cents per gallon in the quarter versus 2016.

 

Q1 2017 US Truckload Carrier Results

 

 

Source: SCDigest Analysis from Company Earnings Releases



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As usual, highlights of the comments from each carrier in their earnings releases are provided below, starting with Werner, which as usual provided the most in-depth commentary.

 

Concerns about the driver shortage were still there as usual, but somewhat more muted than in recent periods overall.

 

Werner

Said freight volumes were weak in January and February but picked up in March and April.

During second and third quarter of 2016, to take advantage of a strengthening dedicated market, Werner moved trucks from one-way truckload, reducing the need to find freight for trucks in that more challenged market.

Werner said the driver recruiting market remains challenging, noting that "Several ongoing market factors persist including a declining number of, and increased competition for, driver training school graduates, a low national unemployment rate, aging truck driver demographics and increased truck safety regulations."

However, Werner said its driver turnover rate once again improved, falling to the lowest first quarter rate in 18 years. That was the result, it said, of raising driver pay, lowering the age of its truck fleet, installing safety and training features on all new trucks and investing in its driver training schools.

Its truckload segment tractor count was down 150 from Q1 2016 to 7180 units. Its dedicated segment ended first quarter 2017 with 3,710 trucks (or 52% of Werner's truckload segment fleet) compared to 3,640 trucks at the end of first quarter 2016, for an increase of 70 tractors year-over-year.

JB Hunt

Hunt said benefits from volume growth and new customer contracts in its truckload segment were more than offset by lower customer rates from competitive pricing, increased purchased transportation costs, higher driver wages, continuing branch network expansion, increased equipment ownership costs and increased insurance and claims costs.

On intermodal, Hunt said that "competitive truckload pricing in the shorter length of haul Eastern network from the 2016 bid season has carried over into 2017 and continues to pressure intermodal rates and conversion."

Hunt's truckload segment saw a 6% decrease in length of haul and a 1% decrease in rates per loaded mile. Customer contract rates were down 1.5% compared to the same period in 2016. At the end of the current quarter the segment operated 2,144 tractors, down from to 2,270 in 2016.

However, Hunt increased its number of tractors in its dedicated unit by 392, noting that "Approximately 83% of these additions represent private fleet conversions."

Heartland Express

Said it saw "a challenging freight environment coupled with unfavorable weather conditions in the western United States during the first two months of the quarter, followed by stronger freight volumes in March."

Operating revenues decreased 23.2% excluding the impact of fuel surcharge revenues, primarily due to lower miles driven during the first quarter compared to the same period 2016.

Knight Transportation

Company said that ""The freight environment was weak in both January and February, particularly in California, but began to improve in March. Our leadership remains focused on improving the productivity of our assets, expanding our brokerage business, and enhancing our cost control measures."

Said in Q1 it saw a 2.3% decline in its loaded rate per mile.

Knight said that its brokerage revenue increased 14.3% in the first quarter of 2017 when compared to the same quarter last year, as load volume increased 18.5%.

Said it plans "to continue to invest in our logistics service offerings, which should continue to improve our return on capital compared with asset-based operations."

Swift Transportation

Interestingly, said that "the truckload industry continues to be plagued with excess carrier capacity for the current demand environment, prolonging the competitive pricing situation that existed throughout 2016."

In its truckload segment, Swift saw a 2.6% decrease in revenue per loaded mile net of fuel surcharge.

It added that "to help combat the pricing environment, we remained focused on our cost control and asset utilization as evidenced by a 4.0% increase in [asset] utilization."

Said that "We anticipate that the difficult operating environment will persist into the second quarter."

Noted that its "Dedicated sales pipeline is strengthening, resulting in an increase in the number of pending bids for new business opportunities."

Marten

Cited "the continuing challenge of an unfavorable freight environment."


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