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From SCDigest's On-Target E-Magazine
- Aug. 12, 2013 -
Logistics News: Q2 2014 Truckload Carrier Review and Comment
Q2 Largely a Strong One for Truckload Carriers, as Lack of Drivers Limits Capacity, Pushing Rates Higher
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 Q2 2014 earnings reports in the last week.
SCDigest Says: |
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| Most carriers are continuing to maintain asset discipline even as volumes have risen, in large part enforced by a lack of drivers. In its truckload segment, for example, Werner ended the quarter with 7035 tractors, down from 7150 in 2013. |
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What Do You Say?
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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 first half 2014 numbers and trends as well.
Consistent with other evidence, in general Q2 was a very good one for truckload carriers, as US freight volumes continued to increase, while the carriers in general did not expand their fleets, leading to rising freight rates.
Overall, the Cass Truckload Linehaul Index, was up a strong 5.8%, 5.7% and 5.2% year over year in the second quarter months of April through June, respectively, illustrating how the market has swung strongly in the carriers' favor. That said, our group of public carriers cited rate gains of less than that, more in the 3-4% range.
Virtually 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 an even greater sense of urgency from most this time.
"The worsening driver supply conditions will continue to be a headwind for [our] dedicated carriage and trucking segments," noted JB Hunt.
Werner said that "Truck capacity is being constrained by an extremely challenging driver market."
Most carriers are continuing to maintain asset discipline even as volumes have risen, in large part enforced by a lack of drivers. In its truckload segment, for example, Werner ended the quarter with 7035 tractors, down from 7150 in 2013. Other TL carriers mostly told a similar tale.
One exception, however, is Celadon,which said it increased its average seated tractor count by 421, or 15%, to 3,191 in the June 2014 quarter compared to 2,770 in the June 2013 quarter.
The company said "This increase was a result of expanding our recruiting efforts at terminal locations, having established a driving school that now has several locations and our acquisitions over the past year," and that
"Our primary focus over the past year has been to expand our service offerings to our customers and grow our capacity of seated tractors."
Below is a table of Q2 results for our group of seven truckload carriers. The revenue growth numbers overall and at Heartland and Celadon specifically have to be taken in perspective, as they largely reflect the impact of acquisitions.
Net income for the group was a up a solid 8.1%, while average operating revenues moved down about a percentage point, to 86.8% for the truckload segments of the carriers. Net income as a percent of operating revenue, however, rose marginally to 7.2% fromn 7.0% in Q2 2013.
Q2 2014 Truckload Sector Results
| For Quarter Ending June 30, 2014 |
Data in $Thousands (meaning Werner's revenue is $542 million, for example) |
| Carrier |
Werner |
JB Hunt |
Heartland |
Knight |
Swift |
Marten |
Celadon* |
Total Carriers |
| Total Operating Rev Including Fuel |
$542,120 |
$1,547,867 |
$226,785 |
$218,908 |
$1,075,900 |
 $168,423 |
$197,386 |
$3,977,389 |
| Change 2013 to 2014 |
7.0% |
11.9% |
69.3% |
9.4% |
4.5% |
4.3% |
21.4% |
11.2% |
| Trucking Revenue Net of Fuel Surcharge |
$332,025 |
$101,074 |
$180,585 |
$171,021 |
$459,100 |
$102,161 |
$161,239 |
$1,507,205 |
| Change 2013 to 2014 |
3.8% |
-0.1% |
69.9% |
6.3% |
-2.0% |
2.2% |
17.8% |
8.1% |
| Dedicated,3PL, VAS Revenue |
$100,501 |
$520,624 |
NA |
$47,887 |
$183,300 |
$33,518 |
$16,760 |
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| Change 2013 to 2014 |
10.2% |
29.7% |
NA |
22.3% |
23.3% |
12.8% |
NA |
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| Intermodal Revenue |
Included in VAS |
$930,668 |
NA |
NA |
$80,800 |
Included in VAS |
$11,113 |
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| Change 2013 to 2014 |
NA |
8.9% |
NA |
NA |
11.9% |
NA |
NA |
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| Net Income |
$25,632 |
$93,408 |
$26,472 |
$26,016 |
$40,198 |
$7,926 |
$15,507 |
$235,159 |
| Change 2013 to 2014 |
-0.8% |
6.5% |
38.3% |
36.5% |
-19.4% |
3.4% |
114.1% |
8.6% |
| Net Income as % of Operating Revenue (Total is Unweighted Average) |
4.7% |
6.0% |
11.7% |
11.9% |
3.7% |
4.7% |
7.9% |
7.2% |
| Net Income as % of Operating Revenue 2013 (Total is Unweighted) |
5.1% |
6.3% |
14.3% |
9.5% |
4.8% |
4.7% |
4.5% |
7.0% |
| Operating Ratio Truckload |
88.6% |
92.6% |
82.1% |
79.0% |
87.9% |
90.8% |
NA |
86.8% |
| Operating Ratio Truckload 2013 |
89.4% |
97.1% |
78.1% |
81.7% |
89.0% |
91.0% |
NA |
87.7% |
| *Celadon's trucking segment revenue includes fuel surchages |
(Transportation Management Article Continued Below)
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The Q2 numbers for the carriers were much better in general than the full first half numbers, as noted in the table below. That means obviously that Q2 was a greatly improved quarter overall for the group versus Q1. Note that Celadon operates on a different financial calendar that all the rest, ending its fiscal year in June, so half year numbers were not available.
1H 2014 Truckload Sector Results
| For 1H Ending June 30, 2013 |
Data in $Thousands (meaning Werner's revenue is $1.03 billion, for example) |
| Carrier |
Werner |
JB Hunt |
Heartland |
Knight |
Swift |
Marten |
Celadon |
Total Carriers |
| Total Operating Rev Including Fuel |
$1,034,142 |
$2,954,774 |
$451,265 |
$424,504 |
$2,084,300 |
$327,832 |
NA |
$7,276,817 |
| Change 2013 to 2014 |
3.5% |
10.5% |
68.2% |
8.9% |
3.7% |
0.6% |
NA |
4.4% |
| Trucking Revenue Net of Fuel Surcharge |
$643,547 |
$193,554 |
$359,165 |
$332,848 |
$900,476 |
$199,691 |
NA |
$2,629,281 |
| Change 2013 to 2014 |
1.6% |
-4.7% |
68.6% |
4.5% |
-1.0% |
2.4% |
NA |
-3.0% |
| Dedicated,3PL, VAS Revenue |
$185,655 |
$1,005,295 |
NA |
$91,656 |
$340,442 |
$63,527 |
NA |
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| Change 2013 to 2014 |
6.9% |
20.3% |
NA |
29.0% |
16.0% |
-5.9% |
NA |
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| Intermodal Revenue |
Included in VAS |
$1,766,163 |
NA |
NA |
$153,756 |
Included in VAS |
NA |
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| Change 2013 to 2014 |
NA |
7.0% |
NA |
NA |
11.9% |
NA |
NA |
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| Net Income |
$39,971 |
$162,071 |
$40,551 |
$45,348 |
$52,503 |
$13,213 |
NA |
$353,657 |
| Change 2013 to 2014 |
-7.8% |
0.6% |
4.3% |
31.5% |
-34.5% |
-11.1% |
NA |
-9.0% |
| Net Income as % of Operating Revenue (Total is Unweighted Average) |
3.9% |
5.5% |
9.0% |
10.7% |
2.5% |
4.0% |
NA |
5.9% |
| Net Income as % of Operating Revenue 2013 (Total is Unweighted) |
4.3% |
6.0% |
14.5% |
8.9% |
4.0% |
4.6% |
NA |
7.0% |
| Operating Ratio Truckload |
90.9% |
93.9% |
86.4% |
80.5% |
91.0% |
92.4% |
NA |
89.2% |
| Operating Ratio Truckload 2013 |
91.0% |
98.0% |
77.8% |
83.5% |
90.7% |
91.4% |
NA |
88.7% |
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.
Werner
Company sai "Positive freight demand trends continued from first quarter 2014 into second quarter 2014. Freight demand (as measured by our daily morning ratio of loads available to trucks available in our One-Way Truckload network) showed consistent strength, and we were overbooked (more available freight than available trucks at the start of each day) throughout second quarter 2014. A tight capacity market combined with a gradually firming economy were the primary contributing factors."
This trend has continued through the first three weeks of July 2014.
Said that the truck capacity is being constrained by an extremely challenging driver market, accelerating trucking company failures and heightened regulatory cost increases for truck ownership and safety, leading to a favorable freight trend it expects will continue.
Said that "We made good progress working with our customers on sustainable rate increases during second quarter 2014. These efforts will 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 difficult regulatory environment."
Werner says recent HOS changes negatively impacted miles per truck by 2-3%.
JB Hunt
The company's trucload segment contnues to shed assets, operating 1,860 tractors compared to 2,018 a year ago.
Load growth of 8% in intermodal and 15% in integrated capacity solutions helped drive 9% and 31% increases in segment revenue, respectively. The Dedicated freight segment revenue increased by 15% as productivity improved on large private fleet conversions implemented a year ago.
The truckload segment revenue was flat with prior year with an 8% smaller fleet.
Core truckload rate increases from customers was approximately 4%.
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Heartland Express
Since acquiring Gorgon Trucking in Nov. 2013, the company achieved an operating ratio of 90.8% in Q1. During the second quarter of 2014, the company lowered the operating ratio to 82.1% and achieved an operating ratio of 86.4% for the first six months of 2014 without yet the combining the two respective company's information technology platforms.
Heartland said that "The trucking industry continues to be challenged with reductions in the availability of qualified drivers at a time when the industry continues to be challenged by various regulations that increasingly reduce drivers' availability. The Company will continue to look at all of our alternatives to enhance our drivers' utilization as well as compensation of our drivers for their time spent away from home while on the road."
Knight Transportation
Said that during the second quarter, overall demand remained strong while capacity appeared to tighten.
Knight achieved 5.6% improvement in revenue per loaded mile, a partial proxy for rate increases.
Company said that "Our dedicated business has also experienced meaningful revenue and earnings growth as we have seen an increase in opportunities to expand our dedicated fleet over the last several quarters."
Like all the others, Knight noted that developing and retaining high quality driving associates remains a significant challenge to the industry.
"Despite a strong freight environment, the current driver supply situation has been a headwind for adding additional capacity," Knight added. "Our driver development and training programs remain a primary focus area for our management team."
In the second quarter of 2014 Knight Transportation formed a new entity, Kool Trans, LLC (Kool Trans). Kool Trans is a full truckload temperature-controlled transportation company created to be attractive to professional drivers while providing high quality consistent service to our customers.
Swift
Average operational truck count fell to 10,228 from 11021, in 2013.
Truckload pricing increases continue to gain momentum, resulting in a 3.7% increase in revenue net of fuel surcharge per loaded mile compared to the second quarter of 2013, and driving second half 2014 expectations higher to a range of 4-5% year over year.
Dedicated revenue grew 23.3% net of fuel from the second quarter of 2013 to the second quarter of 2014, driven by the addition of several new customer contracts
Noted that "Despite these improvements, we were constrained in the truckload and CRS segments by the challenging driver market. Our driver turnover and unseated truck count were higher than anticipated. Therefore, we sold more trucks in the second quarter to offset the impact of idle equipment."
Added that "After assessing the current and expected environment, we believe the best investment we can make at this time, for all of our stakeholders, is in our drivers. Our goal is to clear the path for our drivers by helping them overcome challenges, eliminate wait times and take home more money. We believe we can accomplish this through improved productivity and enhanced pay packages."
These operational improvements, combined with rate increases from
customers, should help pay for the investments it is making in our drivers, but said that "We expect to have cost headwinds in the latter half of 2014 as the investment in our drivers will be more immediate and the benefits are expected to be derived over time."
Marten
Noted that "The operating environment is becoming more favorable with tightening capacity."
Also said "Key operating measures as our revenue per tractor increased 4.1% over the second quarter of 2013, our seventeenth consecutive quarterly increase.Â"
Average tractors fell here as well, down to 2,183 in Q2 from 2,224 in 2013.
Celadon
As noted above, Celadon increased its average seated tractor count by 421, or 15%, to 3,191 in the June 2014 quarter compared to 2,770 in the June 2013 quarter, "a significant operating metric improvement that resulted in increased revenue for the quarter. This increase was a result of expanding our recruiting efforts at terminal locations, having established a driving school that now has several locations and our acquisitions over the past year."
Said that "We believe this will position us well as truck capacity is being constrained by an extremely challenging driver market, as well as the increase in fleet failures due to higher equipment costs and a burdening government regulatory environment. We believe the favorable freight trend will continue due to these factors."
Average revenue per loaded mile increased to $1.62 per mile in the June 2014 quarter from $1.59 in the June 2013 quarter.
Any reaction to our Q2 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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