Truckload Profits Decline in 3Q As Freight Levels Continue Slide

By Jonathan S. Reiskin, Associate News Editor

This story appears in the Nov. 26 print edition of Transport Topics.

The continuing drought in freight withered third-quarter earnings results for truckload carriers, with all 13 of the companies that reported through Nov. 20 showing lower levels of profitability than a year ago.

Figures from American Trucking Associations show tonnage has declined year-over-year in 13 of the past 15 months through September (11-5, p. 1), and none of the carriers could escape that contraction. While two companies posted quarterly losses, the other 11 remained profitable, but at lower levels.

“We had to drive further to get less freight,” Stephen Russell, Celadon Group chairman and chief executive officer, told an investors conference in New York on Nov. 15.

At the same Stephens Inc. conference, Knight Transportation’s Kevin Knight told investors he is so concerned with trimming spending that he has instructed his managers to pursue “not pennies, but tenths of pennies to save on costs.”

J.B. Hunt Transport Services CEO Kirk Thompson said his company is trying to mitigate problems from falling truckload demand by trimming the size of his dry van, over-the-road fleet. And John Steele, Werner Enterprises’ chief financial officer, told a similar story.

All four of those carrier executives also told investors they are augmenting their truckload services with other transportation offerings. Brokerage services were mentioned with great frequency by truckload carriers making presentations that day.

Troubles in the truckload sector are sufficiently well known that shippers are growing concerned. At TransComp and the Intermodal Expo earlier this month, Transplace Inc. CEO Tom Sanderson told Transport Topics he is advising clients of his third-party logistics provider to temper their demands.

“All shippers are looking for savings. The 2004, 2005 increases in freight rates are still on their minds and they want some of that back. . . . However, we don’t want to drive truckload capacity out of the industry. There seems to be an uptick in carrier bankruptcies, and if that accelerates, it would be bad for shippers,” Sanderson said (see story, p. 1).

Covenant Transportation Group and Frozen Food Express Industries were the two truckload firms to post quarterly losses.

Covenant lost $3.6 million for the three months ended Sept. 30, whereas a year ago it earned $795,000 net in the third quarter. Meanwhile, Covenant’s quarterly revenue dipped to $175.8 million from $176.7 million.

Similarly, Frozen Food lost $3.2 million for the quarter, compared with a $2.9 million gain a year ago. Revenue also fell to $114.7 million from $124.1 million in last year’s quarter.

Two other carriers avoided losses by the slimmest of margins: P.A.M. Transportation Services and USA Truck said their quarterly net incomes declined by 98.9% and 99.5%, respectively, compared with the same time last year.

P.A.M. President Robert Weaver said in his company’s quarterly report that the operating environment was typified by “sustained weakness in freight demand.”

“The third quarter had traditionally been challenging due to scheduled shutdowns for two or more weeks in July by customers for which we transport a large amount of freight. Although the months of August and September were profitable, they did not rebound as we have seen in years past,” Weaver said.

USA Truck President Cliff Beckham said in his report, “The current freight environment continues as one of the most challenging we have ever seen. For the second consecutive year, we have experienced virtually no fall peak shipping season.”

J.B. Hunt, the largest public truckload carrier, reported first for the quarter and said its increased profitability for intermodal and brokerage work was dragged down by its truckload and dedicated contract carriage divisions (10-22, p. 9). At Stephens, Thompson told investors truckload is now the smallest of his three asset-based divisions.

“Today, more than 70% of our revenue comes from specialized services [intermodal, dedicated and brokerage] and less than 30% from truckload. But in 1995, we were a truckload carrier who also had some other stuff,” said Thompson, who called this year “the toughest operating environment I’ve seen since 1995.”

Truckload consultant Lana Batts, a former president of the Truckload Carriers Association, said after the New York investors conference that while large, public carriers are experiencing difficulties, small, private carriers are getting “hammered on costs and revenue.”

Batts said she thinks fuel surcharges cover only about 75% of high fuel costs because surcharges usually do not recover deadhead — or empty — miles, idling due to congestion and other factors.

“It’s one thing not to be covered when diesel is $2 a gallon but another at $3 a gallon,” Batts said, adding that small companies relying largely upon freight brokers or factoring firms during lean times can lessen access to vital revenue. Brokers keep a slice of shippers’ payments for bringing loads to the attention of carriers, while factoring firms charge carriers to act as collection agencies.