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Focus: Transportation Management

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From SCDigest's On-Target E-Magazine

- May 14, 2015 -

Logistics News: US Truckload Carriers Blow It Out in Q1

Profits Up 56% over 2014 in Continued Strong Rate Environment

SCDigest Editorial Staff

US truckload carriers posted mostly blow out results for Q1, taking advantage of the strong rate environment to turbocharge the bottom line.

SCDigest Says:

There are some modest signs that carriers may be willing to at long last up their tractors counts in the face of this continued growth in freight.

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We're back as usual every quarter with our review of the results and trends across freight modes. We started last week with US rail carriers, which also enjoyed a generally positive Q1. (See Q1 2015 Rail Carrier Review.)

This week, we cover the US truckload sector and then the LTL carriers the week after that.

Normally, we summarize both the current quarter and year to date results, but as in Q1 those are one in the same, just the Q1 numbers are needed.

In the truckload sector, the rate environment was again very strong for the first three months of the year, with the Cass Linehaul Index, which measures changes in per mile rates before accessorials, fuel surcharges, etc., up between 7.9%, 6.6%, and 5.1% year over year in January, February and March, respectively.

Several of the seven publicly-traded truckload carriers we follow referenced the positive rate environment in their Q1 earnings reports, which mostly delivered oustanding financial results.

JB Hunt, for example, said it was able to achieve core customer rate increases of approximately 9% in Q1 in its truckload segment, as the supply-demand balance remained strongly in the carriers' favor.

Werner noted that "Freight demand demonstrated consistent strength in first quarter 2015, resulting in one of the better first quarter freight markets in the last six years. Freight demand remains firm for the first three weeks of April 2015."

However, there are some modest signs that carriers may be willing to at long last up their tractors counts in the face of this continued growth in freight - though as usual the continued driver shortage may be the largest constraint on the truckers adding to their fleets. For examle, reversing a long period of declines in tractors, JB Hunt's truckload segment actually posted a small increase in Q1, raising the numbe rof tractors from 1917 to 2020 at the end of Q1.

More ambitious, Swift says it is argeting 2015 enterprise-wide fleet growth of 700-1,100 tractors from the beginning to the end of 2015, 218 of which were deployed in the first quarter.

Werner, one the other hand, was basically fleet, ending with 7110 tractors in Q1 versus 7080 in 2014.

All told, it was a gusher of black ink for the group, with profits up a very strong 56% versus Q1 2014. Operating revenues were up only 2.4%, but that in large measure was because fuel surcharge revenues dropped substantially for all the carriers in the quarter, with much lower diesel prices than in 2014.

Net income as a percent of sales rose to 6.1% versus just 4.0%% last year, while average operating ratios (unweighted) - or operating expense divided by operating revenue, a key transport sector metric - declined to 88.3% from 91.7%. in 2014.

You'll find all that data and more in the table below.

Truckload Sector Q1 2015 Operating Results

Source: SCDigest

(Transportation Management Article Continued Below)

CATEGORY SPONSOR: SOFTEON

As usual, we end with some selected comments from each carrier's earnings reports, starting with Werner, which as usual provided by far the most extensive commentary.

Werner

Freight demand demonstrated consistent strength in first quarter 2015, resulting in one of the better first quarter freight markets in the last six years. Freight demand remains firm for the first three weeks of April 2015.

Truck capacity is challenged by an extremely competitive driver recruiting market and heightened regulatory cost increases for truck ownership and safety; we expect this favorable trend will continue.

Said "Continued focus on securing driver friendly, highly productive freight and improved freight selection using our proprietary freight optimization system enabled us to raise our average miles per truck by 2.0% compared to first quarter 2014. Average revenues per total mile, net of fuel surcharge, increased 3.5% in first quarter 2015 compared to first quarter 2014."

Added interestingly that "We are making continued progress implementing sustainable rate increases with our customers. These efforts are ongoing as we move forward in 2015 and work 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 increasingly supportive of Werner's ongoing initiatives to provide sustainable transportation solutions in support of their supply chain needs."

Ended with 7110 tractors in Q1 2015 versus 7080 in 2014.

JB Hunt

Revenue excluding fuel surcharge increased 6%. Increased truck count, better asset utilization, improved freight lane networks and core customer rate increases of approximately 9% contributed to the improved revenue, excluding fuel surcharge.

At the end of the current quarter the truckload segment operated 2,020 tractors compared to 1,917 in 2014, as the downward in that number has slightly reversed itself.

Dedicated Contract Services segment revenue increased by 7% over prior year primarily from rate increases and more activity at customer accounts.

In intermodal, load volumes grew 6% over the same period 2014. Hunt's Eastern network realized load growth of 12% and transcontinental loads grew 2% compared to prior year as the west coast port issues limited eastbound intermodal traffic.

Heartland

Operating revenues decreased 9.6% excluding the impact of fuel surcharge revenues.

The company posted an operating ratio of 84.9% and a 9.4% net margin (net income as a percentage of operating revenues) in the first quarter of 2015 compared to 90.8% and 6.3%, respectively in the first quarter of 2014.

Net cash flows from operations for the first three months of 2015 was an all-time record high of 29.7% of operating revenues or $55.7 million.

The average age of the company's tractor fleet was 1.7 years as of March 31, 2015 compared to 2.6 years at March 31, 2014. During the first quarter of 2015 the company took delivery of approximately 250 new tractors and has approximately 1,300 new tractors scheduled for delivery prior to the end of the year.

Company instituted a 13% increase in average driver wages, including detention pay after one hour.

Knight

During the quarter, truckload capacity remained constrained while demand continued to be solid. Both our trucking and logistics segments experienced profitable growth.

Knight's trucking segment grew revenue, excluding fuel surcharge, 25.0% "as a result of adding capacity through acquisition, growing organically, and improving contract rates."

Revenue per tractor, excluding fuel surcharge, increased 4.7%, year over year, attributable to an 8.5% improvement in revenue per loaded mile, off-set by a 1.5% decrease in average miles per tractor, while length of haul remained essentially flat.

Noted that "We expect attracting and retaining high quality driving associates will be the most significant challenge the industry faces this year. Despite a favorable freight environment, the current shortage of qualified driving associates has been a headwind for adding additional capacity and will likely be a deterrent to industry-wide capacity additions. Our driver development and training programs remain a primary focus area for our management team."

Swift

Company's average operational truck count increased in the first quarter of 2015, on both a year over year and sequential basis, with the majority of the sequential increase occurring within the truckload segment. Swift is targeting 2015 enterprise-wide fleet growth of 700-1,100 tractors from the beginning to the end of 2015, 218 of which occurred in the first quarter.

Said "improvements in both driver retention and recruiting have enabled this growth and were made possible by the ongoing effects of the various driver-friendly initiatives implemented in 2014. In order to ensure continued progress on this front, we have announced plans to enact a material, targeted wage increase for drivers and pay increase for owner-operators on May 1st."

In truckload, saw a 6.0% year over year increase in revenue per loaded mile, a proxy for rate increases.

Said its Dedicated segment revenue net of fuel surcharge grew 24.8% driven by the addition of multiple new customer contracts over the last 12 months.

Marten

Operating revenue, net of fuel surcharges, improved 10.3% to $140.7 million for the 2015 quarter from $127.5 million for the 2014 quarter.

Marten also said "We are also encouraged by the growth of our dedicated operations, with our segment operating revenue, net of fuel surcharges, growing 85.2% to $19.9 million for the first quarter of 2015 from $10.7 million for last year's first quarter. Our dedicated offering addresses our customers' desire for customized transportation solutions tailored to meet their individual requirements as well as our drivers' desire for consistent hours and routes in close proximity to their homes."

Celadon

Company said "Our operating statistics continued to improve during the March 2015 quarter, which we believe is continuing to position the Company for future growth. We increased our average seated tractor count by 731, or 21.2%, to 4,171 in the March 2015 quarter compared to 3,440 in the March 2014 quarter, a significant operating metric improvement that resulted in increased revenue for the quarter. This increase was a result of increasing the number of Celadon driving school locations, our successful acquisition strategy, and the expansion of our independent contractor fleet."

Average revenue per loaded mile increased to $1.80 per mile in the March 2015 quarter from $1.60 in the March 2014 quarter.

Any reaction to our Q1 2015 truckload segment review? Let us know your thoughts at the Feedback button (for email) or section (for web form) below.

Recent Feedback

Good to know that Logistics companies are working on bringing effeciency in the system and that has been reflected in increase in operating margins. Last year, manufacturing companies have been bearing the burden of the changes in Trucking policy and it had suddenly increased logistics costs hence input cost of product. The additional burden of freight increases has been daunting until mid 2015 (now) and coupled with shortages of drivers, logistics companies are focusing on the most efficient/high margin routes, which is putting manufacturing in jeopardy.

Logistics companies now need to work with their customers to make it a win win situation for both, bringing efficiency, lower lead-time, and ultimately cost benefits back to larger population.

Arun Kumar Ojha
Supply Chain Manager
Schlumberger
May, 18 2015