Editorial: The Best and Worst of Times

For most of the American trucking industry, business boomed during the second quarter of 2000, according to the financial reports of the large, publicly held companies. Unfortunately for much of the truckload sector, this jump in business led to a fall in net income.

Large truckload carriers found themselves unable to keep pace with sharp increases in fuel, insurance and driver costs despite a flood of new business.

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At the same time, the long-suffering less-than-truckload sector has shown a marked improvement in gross revenue and net income during the first six months of the year.

Yellow Corp., Roadway Express and Arkansas Best Corp. all showed strong growth in the second quarter, with only Consolidated Freightways experiencing a difficult period. Regional LTL carriers also showed marked improvements to their bottom lines.

On the truckload side, J.B. Hunt Transport, Swift Transportation, U.S. Xpress and Werner Enterprises all showed double-digit increases in revenue, but declines in net income.

For smaller firms, 2000 has been less kind, according to several analysts, as they had greater difficulty recouping the higher costs because of their inability to make rate increases and fuel surcharges stick.

The falling value of used trucks is also hurting companies, eroding their net worth, at least on paper, and reducing their ability to find new financing. Falling truck values are also making it difficult for some ailing firms to go out of business since they owe more on the trucks than the equipment will fetch at resale.

One dark cloud on the horizon comes from comments by David R. Parker, chairman of Covenant Transport, who said the Federal Reserve Board’s moves to raise national interest rates in order to curb inflation is beginning to affect business.

He said Covenant’s tractor utilization fell far short of expectations last quarter, because of “the economy slowing in response to the Federal Reserve’s interest rate hikes.”

Parker said this slowing has led his smaller competitors to slash their rates in order to try and keep cash flowing. “Those companies with 50 trucks or less are just trying to hang on. They’re looking for cash flow to make truck payments. They’re not concerned with profitability.”

If the economy is indeed slowing, future quarters may not be as rosy.