Rightsizing the Fleet

Trucking companies complain of too many tractor-trailers chasing too little freight, and carriers such as Swift Transportation, the nation’s third-largest truckload carrier, are scouring excess equipment from their fleets, with Phoenix-based Swift alone cutting 4,000 power units.

But not all motor carriers see shrinking as the best road to higher rates and improved profitability. Knight Transportation and Celadon Group are among those holding onto trucks and banking on being able to pick up freight from competitors in a recovery — even if that means giving up some profit in the toughest recession since World War II.

“With freight demand seemingly having bottomed, we decided to maintain our fleet size and prepare for the opportunity for growth rather than reduce the fleet size,” Knight said in its third-quarter report. Phoenix-based Knight could have improved its operating ratio in the short-term by shrinking, but it prefers a longer gambit.

“We believe that our level of profitability, fleet renewal strategy and use of owner-operators should enable us to internally finance attractive levels of fleet growth when demand conditions are right,” the company said. Its tractor count fell by 48 from a year at the same time last year to 3,752 units. But while it cut 220 company trucks, it added 172 owner-operators.

Other carriers are transforming their equipment pools in similar fashion. USA Truck increased its owner-operator fleet by 58.9 percent in the quarter, to 143 units.

Contractors still operate only 6.2 percent of Van Buren, Ark.-based USA Truck’s total fleet of 2,292 tractors, but the company is making a concerted effort to expand its owner-operated fleet. “More than ever before, a greater portion of our fleet is comprised of tractors for which we have made no capital investment,” the company said.

Celadon actually increased its tractor fleet 8.5 percent year-over-year in the quarter, bringing it up to 3,221 units, while decreasing the number of trucks it owns by about 600, the Indianapolis-based carrier said in its report. It has 460 tractors — worth $43.4 million — on order for delivery over the next three quarters. Owner-operators account for 9.8 percent of Celadon’s capacity, or 317 tractors, up 39.7 percent from a year earlier.

Earlier this year, Chairman and CEO Steve Russell said the company would benefit from deep cuts other carriers made in their fleets. Shippers have asked Celadon to step in when other carriers folded or no longer had the capacity to meet commitments, he said.

Some of Celadon’s increase represents “pre-buying” of tractors ahead of new federal emissions requirements that will add substantially to the cost of 2010 models.

“We intend to continue to purchase tractors through 2009,” the company said. At the end of the year, “our average truck will be approximately 1.1 years old. We should not have to purchase any tractors in 2010 or possibly 2011 as well.”

Used truck values, which have fallen at least 30 percent over the past two years, also keep trucking companies from cutting into their fleets. A glut of low-priced used trucks also threatens carrier balance sheets and borrowing.

Truckers are dealing with that problem in a number of ways. Some take equipment out of service and hold it for sale, which stops depreciation. Others lease vehicles rather than finance ownership, avoiding depreciation, amortization and interest.

At Celadon, 62.8 percent of company tractors are held under operating leases, a 38.5 percent increase from a year earlier. The company expects to use operating leases more in the coming year, increasing its equipment rental expense — but decreasing its risk in the used truck market.

Contact William B. Cassidy at wcassidy@joc.com.