In what is becoming a broken record, it was a generally soft quarter for US truckload carriers in Q2, with net income for the group down 8.5%, though several carriers said the quarter ended with signs of a positive trend in terms of freight volumes.
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 rail carriers and then the less-than-truckload sector the week after that.
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| Concerns about the driver shortage were still there this quarterl, but somewhat more muted than in recent periods overall, with a couple of exceptions. |
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The carriers in general cited a so-so freight market, typified by this comment from Schneider: "The market pressures of the first quarter continued into the second quarter. However, in June indications of improving market conditions began to appear."
Knight said that said that "The freight environment began to show signs of improvement as we experienced more non-contract opportunities during the second quarter of 2017 as compared to the same quarter last year."
The American Trucking Associations' Freight Tonnage Index has been basically flat in 2017, up just 1% versus 2016, as a comparison point.
Data from the Cass Linehaul Index, which measures US per mile truckload rates before fuel surcharges and other accessorials. shows rates were up year-over-year 1.3%, 1.1% and 1.5% in April, May and June, respectively, after 13 straight months of year-over-year declines.
However, JB Hunt noted that customer contract rates were down 0.4 % compared to the same period in 2016 in its truckload segment.
The big news in the sector in Q2 was the April announcement that Knight Transportation and Swift are 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.
Schneider also became a public company in 2017, and its results are now included in out data table below.
All of the carriers we follow were again profitable in the quarter, but most saw a decline in net income. Net which for example were down 38% at Swift. Werner, however, saw profits surge almost 27%. Margins (net income as a percent of revenues) ranged from 11.3% at Heartland Express to just 2.6% at Swift - maybe that's why it decided on a merger.
In aggregate, profit margins fell across all seven carriers from 6.2% in Q2 2016 to 5.9% this year in our unweighted average.
Average operating ratios, or operating expense divided by operating revenue, a key transport sector metric, rose two percentage points in Q1, from 88.5% on average for the group in Q2 2016 to 90.5% in this latest period, driving the fall in profits.
The full table of results from our carrier group is provided below.
We will also note that total revenues for our carrier group were up 3.5%, but that helped by a increase in fuel surcharge revenues as diesel prices increased
Q2 2017 US Truckload Carrier Results
Source: SCDigest Analysis from Company Earnings Releases
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As always, highlights of the comments from each carrier in their earnings releases are provided below, starting with Werner, which as usual uprovided the most in-depth commentary.
Concerns about the driver shortage were still there this quarterl, but somewhat more muted than in recent periods overall, with a couple of exceptions.
Werner
Noted that "Second quarter 2017 freight demand in our One-Way Truckload fleet improved seasonally throughout the quarter. The seasonal improvement was better than normal in some periods of second quarter 2017, compared to seasonally softer than normal freight demand in second quarter 2016. Freight volumes thus far in July 2017 in One-Way Truckload have been seasonally better than normal and stronger than the same period in July 2016."
Rates look to have risen in the 1-2% range for truckload shipping.
Added that "Assuming this freight volume trend continues, we expect contractual rates to begin to improve over the next few quarters, particularly noting the expected tightening of supply when the electronic hours of service mandate for the trucking industry becomes effective in December of this year."
Saw a small increase in the numbers of trucks in its truckload segment, rising 60 units year-over-year to a total of 7315. Dedicated tractors rose from 3760 in Q2 2016 to 3815 this year.
Noted that "The driver recruiting market remains challenging." That said, after a number of initiatives such as increasing pay, modernizing its, fleet, etc., Werner said its driver turnover rate once again improved, achieving the lowest second quarter rate in 19 years.
Werner Launched a new logistics solution in Q2, Werner Final Mile, with the delivery of its first shipments in May 2017.
JB Hunt
Customer contract rates decreased approximately 0.4% compared to the same period in 2016 in Hunt's truckload segment.
At the end of the Q2, the truckload segment operated 2,072 tractors compared to 2,186 a year ago, changing a recent pattern of a growth in trucks after years of decline.
Hunt saw load growth of 5% in intermodal (JBI), a 5% increase in revenue producing trucks in its dedicated contract services (DCS) business, and a 20% increase in volume in its integrated capacity solutions.
Traditional truckload carriage was just 5% of total revenue in the quarter, and just 3% of operating income.
The truckload unit's operating ratio rose sharply, from 90.9% in Q2 2016 to 94.1% this year.
Schneider
Observed that "The market pressures of the first quarter continued into the second quarter."
However, "in June indications of improving market conditions began to appear. July is always a challenging month, so we will have a better read by mid-August, but we are cautiously optimistic that the market will see strengthening in the second half of 2017."
Noted that the second quarter also marked the one-year anniversary of ITS acquisitions of Watkins & Shepard and Lodeso, which "enhanced our first-to-final mile service offering. Over the past year we've worked with omnichannel retailers and manufacturing customers to reduce complexities in the supply chain and provide a premium delivery service."
Schneider also said "Second quarter driver capacity, although stable, was below desired levels in parts of the truckload segment," limiting revenue.
Heartland Express
Noted the "continued focus on efficient operations as evidenced by delivering an operating ratio that is the best in the industry among our peers."
Heartland acquire Interstate Distributor Co. on July 16.
Operating revenues decreased a sharp 21.0% excluding the impact of fuel surcharge revenues, primarily due to lower miles driven during the second quarter compared to the same period in 2016.
Knight
Company said that "The freight environment began to show signs of improvement as we experienced more non-contract opportunities during the second quarter of 2017 as compared to the same quarter last year. Our revenue per loaded mile increased slightly year over year, which marks the first year over year improvement since the third quarter of 2015."
It added that "The 2017 bid season has been competitive, similar to 2016, however, we expect the recent capacity tightness and non-contract pricing strength to lead to an improved rate environment."
Knight also cited a "difficult experienced-driver recruiting market."
Revenue per loaded mile, often used as a proxy for rate changes, were basically flat in Q2.
Swift
With the pending merger with Knight Transportation, Swift offered no commentary on its results, the market, etc.
Truck count in the truckload segment fell from 10,610 in 2016 to 9925 this year. Roughly 30% of Swift's tractors in this segment come from independent drivers.
In the dedicated segment, tractor count stayed about flat, at 3090 versus 3049 in Q2 2016.
Marten Transport
Company earned the highest net income in its history in this quarter and achieved its best operating ratio, net of fuel surcharges, over the last ten quarters.
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