It was another soft quarter for US truckload carriers in Q2, as nearly all of them cited weakness in volumes and rates, with profits profits for the group of six carriers we follow down 13.7%
The number of publicly traded truckload carriers we follow each quarter declined by one for Q2, as Indianapolis-based Celadon may be facing some accounting issues, according to the investment web site SeekingAlpha, and it is not clear now when its Q2 earnings will be released. Celadon's investor web site oddly does not show a date for its next earnings call for the just completed quarter ending June 30, and still shows April 28th as the "next" earnings report date, obviously three months behind the times.
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| Werner commented that based on the current rate and freight market, it would be difficult to sustain rate per total mile on a year-over-year basis, or achieve increases, in the next few quarters. |
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From an overall market perspective, the Cass Linehaul Index, which measures US truckload rates before accessorials, fuel surcharges and other fees, was down all three months of Q2, falling 2.3%, 1.2% and 1.8% year-over-year in April, May and June respectively, making it four straight months of decline.
Those declines were due to a freight market almost all the carriers characterized as "soft" in the quarter.
For example, Werner noted that "Second quarter 2016 freight demand was significantly softer than freight demand in the second quarters of the prior two years."
Similarly, Heartland Express commented that "Throughout the first half of 2016 we continued to experience downward pressure on freight rates due to the softness in freight volumes resulting from the available capacity in the industry."
Swift said it has responded to slowing freight demand by reducing its truck count, with its consolidated average operational truck count down by 244 trucks in Q2 versus 2015, and by 267 trucks when compared to the first quarter of 2016.
But Swift added that added that "We remain optimistic that pricing will rebound as the Electronic Logging Device (ELD) mandate draws closer."
All of the carriers we follow were profitable in Q1, with net margins ranging from 10.2% at Heartland Express to3.7% at Werner (net income as a percent of revenues). In aggregate, profits margins fell across all six carriers from 7.6% in Q2 2015 to 6.4% this year.
Average operating ratios, or operating expense divided by operating revenue, a key transport sector metric, rose from 85.1% on average for the group in Q1 2015 to 88.7% in this latest period.
The full table of results from our carrier group is provided below:
Q2 2016 US Truckload Carrier Results
Source: SCDigest Analysis from Company Earnings Releases
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.
(See More Below)
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Werner
Company said demand was weakest in April 2016 and showed some modest seasonal improvement in May and June, noting that "Freight volumes and transactional spot market pricing in the One-Way Truckload market were disappointing relative to expectations."
Noted that during June 2016, the company shifted approximately 150 trucks from One-Way Truckload into Dedicated to lessen the impact in the more difficult One-Way Truckload market. Also said that freight demand for July was better than most comparable July-to-date time periods, and this has begun to help improve transactional spot market pricing.
Werner saw a 2.1% decrease in average revenues per total mile in Q2, a proxy measure for rate changes.
Company also said that "An excess supply of industry trucks relative to sluggish freight demand created a market in which customers began to push harder for contractual rate decreases. During the recent contractual bid season, we chose to exit from certain contractual business that would have required significant contractual rate decreases for the next year, since we believe that this pricing is not sustainable and that freight market conditions will begin to show improvement during the next year."
It added that "While truckload capacity is currently available in the market, we believe significantly lower truck orders and lower truck builds in recent months combined with the upcoming changes in trucking regulations should begin to tighten the supply side of the market in the next few quarters. We are continuing to work with our customers to explain the cost increases associated with more expensive equipment, a shrinking supply of qualified drivers and an increasingly challenging regulatory environment."
That said, Werner commented that based on the current rate and freight market, it would be difficult to sustain rate per total mile on a year-over-year basis, or achieve increases, in the next few quarters.
"We are not growing our truck fleet until we see meaningful improvement in the freight and rate markets,"
the company said.
JB Hunt
The company's intermodal business had a solid quarter, with the Eastern network seeing load growth of 10% while transcontinental loads grew 8%, as West coast port volumes continued a more normal velocity and rail service continued a year over year improvement trend.
Again reversing the trend for several years of reducing tractors in its truckload business, Hunt operated 2,186 tractors compared at the end of Q2 in that unit versus 2,073 a year ago, an increase of 11%.
Core customer rate increases were up 0.9% in truckload compared to the same period in 2015 in a period where most other carriers spoke of declining rates.
Heartland Express
Company noted that typically, freight volumes improve during the second quarter as compared to the first three months of the year but that wasn't the case in 2016 as freight volumes didn't improve until mid-June.
Heartland noted that "We remain committed and focused to returning our operating ratio to the low 80's." It's OR was 83.2% in Q2, up from 78.5% in 2015.
The average age of the company's tractor fleet was 1.5 years as of June 30, 2016 compared to 1.7 years at June 30, 2015.
Knight Transportation
Company noted that "The freight environment in the second quarter of 2016 was less attractive than the same quarter a year ago. We attribute the change to excess trucking capacity in the markets we serve. Although a surplus of trucking capacity remains currently, significantly declining new truck orders, increased bankruptcies, reductions in the driver workforce, low returns on invested capital, and additional regulatory burdens expected to phase in over the coming quarters has and will continue to reduce available capacity."
Knight saw a 2.4% decrease in average revenue per loaded mile, a proxy measure for rate changes.
The average age of the company's trucks was just 1.8 years, but it said it expects the average age to increase as it extends the duration in which it operates tractors "as a result of the rate environment and weak used equipment market."
Swift
Commented that "Truckload volumes and pricing continue to be challenged with excess industry capacity, excess customer inventories, and sluggish demand," which have "have pressured volumes and pricing."
Swift also noted that it "increased our participation in the spot market to help offset the lack of available freight in certain markets."
Added that "Similar to the first quarter, the intermodal market continued to be challenging during the second quarter, as select intermodal providers continued with their attempt to gain volumes through aggressive pricing. Second quarter bid activity reflected these pressures, as some shippers became more willing to shift bid volumes based on low price offers."
Marten Transport
Noted that "We have continued to demonstrate the strength of our multifaceted and diverse business model which drove growth in our top line revenue and profitability despite pricing pressures and a soft freight market."
While others were reducing truck counts, Marten grew its average number of truckload and dedicated tractors by 362 tractors, or 15.4%, in the first half of this year over the first half of 2015.
Any reaction to the Q2 review of the truckload sector? Are you seeing falling rates - and less interest in partnerships with carriers in favor of focusing on price? Let us know your thoughts at the Feedback section below.
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