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From SCDigest's On-Target E-Magazine

- Feb. 9, 2016 -

Supply Chain News: US Truckload Carriers See Mixed Q4, Amid Sluggish Freight Environment

A Detailed Look at Truckload Segment Results and Trends in Q4 and All of 2015

SCDigest Editorial Staff

US truckload carriers saw decent but not great results in aggregate in Q4 amidst a sluggish freight environment, though the results varied sharply across the group of seven carriers we follow.

SCDigest Says:

Full year 2015 results were actually stronger, stemming from the more favorable market earlier in the year, with net income for the group up a healthy 12.2%, with profits representing 7.1% of total revenues.

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We're back as usual with our quarterly review of the results and trends across freight modes.

This week, we cover the US truckload sector and then follow in the next two weeks with reviews of first the rail and then the LTL carriers (some of which report late) after that.

In looking at the truckload market overall in Q4, rates were up very modestly in the quarter and at a much lower pace than earlier in 2015. The Cass Linehaul Index, which measures per mile truckload rates before accessorials, was up 1.9%, 1.6% and 1.1% in October, November, and December, respectively, versus 2014 levels in those months..

That compares with rate gains of more than 5% in each of the first three months of 2015, so a big deceleration there.

Reflecting those Cass numbers, average revenues per total mile net of fuel surcharge, a proxy for rate changes, increased just 0.5% in fourth quarter 2015 in the truckload segment at Werner compared to fourth quarter 2014. The same measure was also up just a modest 1.9% at Swift, though it rose 5.1% in its dedicated segment. Meanwhile, JB Hunt said its saw core rate gainsOF 3.7% in its recently rallying truckload unit.

The freight analysts at Avondale Partners, who work with Cass on the index, expects this trend to continue, noting that "With softening demand and more available capacity, 2016 forecasted price increases remain between 1% and 3%."

Most carriers described the Q4 freight market as soft. Marten, for example, noted in its Q4 earnings call that it has seen "a soft freight market since the second quarter" of 2015. Celadon described Q4 as a "lackluster freight environment."

As another data point, the American Trucking Associations' advanced seasonally adjusted For-Hire Truck Tonnage Index increased just 1% in December, following a decrease of 0.9% during November. For the full year, freight tonnage was up 2.6%, but volume fell off in the last months of the year.

"With year-over-year gains averaging just 1.2% over the last four months, there was a clear deceleration in truck tonnage," said ATA Chief Economist Bob Costello.

But despite that recent softness, some carriers continued to modestly expand capacity. For example, overall average operational truck count at Swift increased 490 trucks, or 2.8%, year over year in the fourth quarter. At the end of Q4, JB Hunt operated 2,149 tractors in its truckload compared to 1,886 a year ago, continuing to reverse the trend of downsizing that business that had been seen before 2015.

But a lack of drivers continues to hamper fleet expansion, despite nearly all trucking companies in our group increasing driver pay in 2015.

Knight noted that "attracting and retaining high quality driving associates remains a significant industry challenge, and that "the current shortage of qualified driving associates has been, and will continue to be, a headwind for adding additional capacity."

Carrier revenues for the quarter and full year 2015, have been impacted heavily by the reduction in fuel surcharge revenues stemming from the big drop in diesel prices. That of course doesn't really impact the underlying carrier financials, as the fuel surcharge is largely just a pass through cost, although with some lag such that it can impact results in a given quarter.

Profits across all seven truckload carriers we follow were up a decent 5.1% in Q4, though as shown in the table below, that overall number masks some large swings across individual carriers. Profits were up 24% at Swift, for example, and 12% at Werner, but were down 22% at Celadon and 21% at Heartland Express.

Overall profitability stayed about the same, at 6.9% of revenues versus 6.8% in 2014, though again those revenues were impacted by falling fuel surcharges, so the actual profit picture was actually improved over last year.

But average operating ratios, or operating expense divided by operating revenue, a key transport sector metric, worsened in Q4, rising to 87.3%, from 85.8% in 2014.

The full Q4 results for all seven carriers is provided in the table below.

Truckload Carrier Results Q4 2015

Source: SCDigest

(Transportation Management Article Continued Below)

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Full year results were actually stronger, stemming from the more favorable market earlier in the year, with net income for the group up a healthy 12.2%, and profits representing 7.1% of total revenues.

Truckload Carrier Results Full Year 2015

As usual, we end with some selected comments from each carrier's earnings reports, starting with Werner, which as is generally the case provided by far the most extensive commentary (though much repeats each quarter in areas like the driver shortage).

Werner

Company reported revenues and record earnings for the fourth quarter and year ended December 31, 2015, and noted that "2015 was a strong earnings year for Werner Enterprises."

Werner noted that "2014 and 2015 were cyclically contrasting years. 2014 provided the benefits of gradually improving demand from a strengthening economy and constrained supply due to a tight driver market and increasing safety regulations. Freight demand in 2015 did not strengthen as the year progressed, as the rate of economic growth slowed. The truckload sector also experienced supply increases in 2015 as small carrier confidence rose as a result of better rates in 2014 and much lower fuel prices beginning in late 2014."
Average revenues per total mile, net of fuel surcharge - a proxy for rates - increased just 0.5% in fourth quarter 2015 compared to fourth quarter 2014.

As has noted in recent quarters, Werner said that "We are continuing to work with our customers to recoup the cost increases associated with more expensive equipment, a shrinking supply of qualified drivers and an increasingly challenging regulatory environment. Strategic customers understand the collective capacity and service challenges facing our company and our industry and are supportive of Werner's ongoing initiatives to provide sustainable transportation solutions in support of their supply chain needs" - read "allow us to raise rates."

Company ended fourth quarter 2015 with 7,450 trucks in the Truckload segment, a year-over-year improvement of 400 trucks compared to the end of fourth quarter 2014.

JB Hunt

In its truckload segment, excluding fuel surcharges increased 12% primarily from increased truck count and core customer rate increases of approximately 3.7% compared to fourth quarter 2014. At the end of the period, JBT operated 2,149 tractors compared to 1,886 a year ago.

Truckload operations, however, account for only 6% of Hunt revenues, and 5% of profits.

Total Hunt intermodal volumes grew 6% over the same period in 2014. Intermodal revenue per load excluding fuel surcharges increased approximately 5% compared to a year ago in Q4.

Heartland Express

Operating revenues decreased 6.2% excluding the impact of fuel surcharge revenues, which the company blamed on "lower load volumes, which were generally due to lower overall industry volumes."

Noted that in 2015 it "significantly increased driver pay."

The average age of the Company's tractor fleet was just 1.25 years as of December 31, 2015 compared to 2.0 years at December 31, 2014.

Knight

Company noted that "During the fourth quarter we experienced a less robust freight environment when compared to the same quarter last year. The contracted portion of our freight volume remained relatively stable, however, non-contract opportunities were challenged by falling load counts and additional competition. This led to a decline in consolidated revenue, excluding trucking fuel surcharge, of 2.8%."

Knight added that "Attracting and retaining high quality driving associates remains a significant industry challenge. Although the current shortage of qualified driving associates has been, and will continue to be, a headwind for adding additional capacity, we have experienced a reduction in our open tractor count."

It added that it increased driver pay in Q4 "in selective geographies."

Swift Transportation

Net income was up 24% in Q4 and 22% for the full year.

Truckload revenue per mile up a modest 1.9%, but the same measure was up a strong 5.1% Swift's dedicated business.

Dedicated revenue net of fuel surcharge grew a strong 11.6% in Q4.

Truck count in the truckload segment increase just a bit, to10,465 from 10,333 in 2014,but overall average operational truck count increased 490 trucks, or 2.8%, year over year in the fourth quarter.

Marten

Operating revenue, net of fuel surcharges, improved 6.6% to $154.0 million for the fourth quarter of 2015 from $144.6 million for the fourth quarter of 2014, and improved 8.2% to $592.6 million for 2015 from $547.7 million for 2014.

Company said it has seen "a soft freight market since the second quarter."

Average revenue, net of fuel surcharges, per tractor per week fell from $3698 in 2014 to $3400.

The company ended Q4 with 2,740 total tractors in its fleet, up from 2,420 at the end of 2014.

Celadon

Company saw its average seated tractor count of 1,693 or 46.8%, to 5,314 in the December 2015 quarter compared with 3,621 in the December 2014 quarter, but that was primarily the result of acquisition, not organic fleet expansion.

Average revenue per tractor per week decreased $374, or 11.9%, to $2,775 in the December 2015 quarter, from $3,149 in the December 2014 quarter, "a result of a lackluster freight environment coupled with the significant growth in our seated tractor count."

However, average revenue per loaded mile was up 6.6% in Q4, to $1.917 per mile in the December 2015 quarter from $1.798 in 2014 quarter.

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