Dry Van Carriers Lag Other Markets in Revenue Growth

2011 was a good year overall for the largest trucking companies, according to the list of Top 50 Trucking Companies. Carriers in each of the primary markets collectively had double-digit or near double-digit growth. Profits also increased during the year, and public carriers in each market as a whole improved their operating margins. Carriers in the truckload market had the largest growth in revenue at more than 14 percent compared to 2011.

But one service lagged all others in revenue expansion: dry van truckload. The companies with the lowest revenue growth are primarily one-way dry van carriers. The dedicated portion of the dry van market, including Ryder, J.B. Hunt DCS and Greatwide, performed strongly, but the one-way segment fell behind. Seven carriers posted year-over-year revenue growth of less than 6 percent in 2011, and five of them — Covenant, Celadon, Dart, US Xpress and Heartland — are primarily one-way dry van carriers.

Even among more diverse truckload carriers, dry van showed the slowest growth. In 2011, Swift’s one-way dry van business increased revenue 5.2 percent, compared with 12.5 percent for the company’s dedicated segment and 8.4 percent for intermodal and logistics. Likewise, of Knight’s four operating divisions, dry van was the only one that didn’t have double-digit revenue growth.

Several factors account for the slow growth of dry van carriers, none more than intermodal’s market share expansion. Intermodal companies have been shifting long-haul truckloads onto the rails for years and are increasing their presence in shorter-haul lanes.

Evidence of this is the decreasing average length of haul for J.B. Hunt’s intermodal division, from 2,010 miles in 2005 to 1,726 in 2011. New rail corridors allowing for double-stacking of containers and faster transit times make intermodal services a more viable option in regional markets in the eastern U.S.

Competition from intermodal primarily impacts the dry van truckload segment, although some companies offer temperature-controlled intermodal services. NFI added refrigerated containers to its intermodal fleet in 2010, and temperature-controlled carrier Marten, whose intermodal revenue grew 36 percent last year, offers trailer-on-flatcar services. Still, dry cargo composes the majority of freight moving via the mode and negatively impacts the dry van truckload segment more than others.

Another factor contributing to the dry van segment’s low revenue growth is difficulty in recruiting and retaining drivers among some carriers in the space. Covenant’s driver turnover spiked briefly to 140 percent in July 2011, and Celadon’s average seated truck count was down 6 percent in 2011’s third quarter.

Recruitment for these two carriers was especially difficult because they operate in the long-haul segment. With an average length of haul around 900 miles, they found it more difficult to find and keep drivers.

Carriers such as Heartland and Warner that provide regional and dedicated services and have an average length of haul around half that of the long-haul carriers typically have less difficulty recruiting and retaining drivers.

To mitigate some of the negative impact of increasing driver turnover, some carriers raised driver pay. Celadon took a different approach, acquiring American Eagle, Martini Transportation and Glen Moore in late 2011 to gain access to their drivers. The three acquisitions gave the company 325 new drivers, and Celadon added on early this year with the purchase of Teton Transportation.

Although other truckload segments outpaced dry van revenue growth, that didn’t translate to lagging profits for dry van carriers. Heartland, which procures 95 percent of its revenue from one-way dry van services, has consistently been the most profitable public truckload carrier and was the only public truckload operator with a sub-80 operating ratio last year.

Knight’s dry van division also produces strong margins, and its sub-85 operating ratio was second only to Heartland. Con-way Truckload had the largest operating ratio improvement for public truckload companies during the year.

Despite the potential profit margins in the dry van segment, some trucking companies are shifting focus to modes with greater potential for revenue expansion. NFI, for example, converted all of its $130 million over-the-road business to dedicated trucking in 2009 and 2010. J.B. Hunt, once the leader in one-way truckload, has reduced its over-the-road fleet over the last few years to focus on growing intermodal, dedicated and brokerage services. In 2001, J.B. Hunt’s one-way dry van division represented 39 percent of total revenue; in 2011, it was 11 percent.

The situation is similar in the less-than-truckload industry, where acquisitions of dry van truckload operators were common. In the mid-2000s, Con-way, YRC Worldwide and R+L Carriers acquired truckload operators, but LTL companies recently have looked to other trucking segments to expand their services. Old Dominion is expanding its drayage business, Averitt is focusing on developing its flatbed operations, and none of Roadrunner’s six acquisitions within the last 14 months have been in dry van truckload.

Some LTL carriers are getting out of the dry van segment altogether. Vitran sold its truckload division in late 2010 and purchased the LTL operations of Milan Express in February 2011. YRCW sold its truckload business to Celadon as part of the company’s narrowing focus on the LTL industry.

Despite its slow growth, dry van is a primary service component at most of the largest trucking companies. The profit outlook for the segment, and the truckload market in general, is bright, and carriers should be able to expand margins in the near term through price increases made possible by stable demand and tight capacity.

Michael Scheid is an analyst at SJ Consulting Group, a transportation and logistics consultant with offices in Pittsburgh and India.

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