P.A.M. Transportation Services Inc. reported higher revenue and earnings in the fourth quarter, bolstered by increased demand for truckload hauling and higher rates. Full-year profit, however, slumped as many of the company’s customers demanded lower rates to keep their business.
“Throughout most of 2017, we were challenged by downward rate pressure from a majority of our customer base,” said President Daniel Cushman in a statement Feb. 15. “If an agreement could not be reached regarding reduced rates, customers pulled their freight and awarded it to a new low bidder. This process played out over and over throughout most of 2017.”
As a consequence, the company lost business in several dedicated freight lanes, which led to a reduction in fleet size and a less profitable mix of freight for much of the year, Cushman noted.
Things began to turn around late in the year.
“During the fourth quarter, it became evident that shippers were beginning to have concerns about potential shortages in truck capacity,” Cushman explained. “These concerns translated into higher demand for our services, which in turn translates into higher rates received for those services. We expect that this trend will continue.”
For the three months ended Dec. 31, P.A.M. posted net income of $31.6 million, or $5 a share, on revenue of $110.9 million. That compared with net income of $722,842, or 11 cents, on revenue of $108.4 million in the same period a year ago.
For the year, P.A.M. earned $38.9 million, or $6.08 a share, on revenue of $437.8 million, compared with net income of $11.1 million, or $1.67, on revenue of $432.9 million in 2016.
Results include a one-time benefit from the tax reform law enacted during the fourth quarter. Without the tax benefit, earnings per share was 28 cents in the quarter and $1.43 a share for the year, the company reported.
“We did not finish 2017 as strong as we would have liked,” Cushman noted. “December was particularly difficult due to automotive plant shutdowns and shortfalls in peak freight commitments as some customers fell considerably short of hitting their capacity targets.”
The prospect of improving demand and higher rates led to an increase in pay for drivers.
Cushman said the increase was “an absolute necessity” to remain competitive.
“Historically, our driver model has been, in large part, to hire and train new student drivers,” Cushman said. “This model served us well for many years as the pipeline of new student drivers helped to keep our trucks manned.”
Because many other carriers did not hire drivers with less than one year of experience, there was less competition for P.A.M.
But that also has changed, Cushman noted.
“This experience requirement by our competitors has over time decreased to nine months, then to six months and now for many it’s down to three months. This has substantially increased competition for our new drivers.”
Since implementing the pay increase, Cushman said the company has seen positive trends in recruitment and retention and is optimistic that it can expand capacity in 2018.
“We expect to finish with a company-owned truck fleet more than 20% larger from where we finished 2017,” Cushman said. “We have been awarded multiple dedicated opportunities with target start dates in the first quarter of 2018 at rates that support an improved margin and that will be attractive to drivers seeking stable lanes.”
P.A.M., based in Tontitown, Ark., operates throughout the continental United States and in the Canadian provinces of Ontario and Quebec. The company also moves freight to and from Mexico through gateways in Laredo and El Paso in Texas. The company ranks No. 68 on the Transport Topics Top 100 list of largest for-hire carriers in North America.