Companies that own trucks and those that don’t are finding the surest route to profit in the downturn may be through the third-party brokerage market.
Like the rest of the trucking industry, broker C.H. Robinson Worldwide is having a hard time finding freight to fill trucks in its network of 50,000 independent contractors. But the company kept its bottom line steady in the desperate truckload sector in the first quarter thanks to falling fuel prices and a market that had drivers accepting almost anything to keep their assets moving.
The Minneapolis-based operator saw its business follow the sliding economy in the first quarter, with gross revenue falling 15 percent, to $1.7 billion, from the first three months of 2008. But the $85.4 million net profit was barely a truck length’s difference from the same period last, down just 1.1 percent.
At the same time, profit margins increased in the carrier’s truckload and less-than-truckload businesses, while truckload volume decreased about 10 percent and LTL volume increased approximately 5 percent.
“This recession has caused a sudden weakness in freight demand, which is typical of past recessions,” said John Wiehoff, C.H. Robinson chairman and CEO. “What’s unique about this one is the suddenness and severity of the demand drop-off, which is triggering more aggressive price adjustments from carriers and shippers.
“When carriers reduce prices rapidly, we’re able to adjust quickly because most of our business is spot or can be negotiated daily,” Wiehoff said.
Truckload carrier Knight Transportation, which pays for its share of heavy assets, was still able to increase profit 2.9 percent in the quarter to $11.7 million, as brokerage and refrigerated business offset steep declines in its core trucking volume.
Knight said revenue fell 15.7 percent to $148.7 million, but business at the Phoenix-based carrier improved in late March.
“The rapid decline in industrywide shipment activity that was evident in the fourth quarter initially carried over into the first,” said Kevin P. Knight, company chairman and CEO. “However, as the quarter progressed, we did experience some moderation in the pace of the decline as some sectors of the economy appeared to replenish very low inventory levels.”
Knight said his company benefited from a diversified business model, including its brokerage service, a 30 percent year-over-year volume growth in its refrigerated segment and its growing intermodal drayage business at ports in Southern California.
J.B. Hunt, its traditional heavy-haul trucking just 14 percent of overall revenue, used its brokerage segment to make money for the company. Operating profit for that segment was up 111 percent on a 51 percent increase in revenue in the first quarter.
“Many asset-based truckload carriers appear desperate to reposition their equipment in search of compensatory loads,” the company said. “Many seem willing to move freight in their backhaul lanes for anywhere from one-half to two-thirds of their variable costs.”
A big exception to the non-asset-based rule of hedging against falling freight volumes was Landstar System, which posted a 41.4 percent decrease in profit during the first quarter compared to a year ago.
While C.H. Robinson got a bump from its produce business, Landstar was hurt by the stalled auto industry. Revenue from Landstar’s automotive carriers made up about 7 percent of its revenue in 2008. “The number of loads hauled for shippers in the automotive industry and for shippers in our substitute line-haul business were significantly below prior year levels,” said Henry Gerkens, Landstar president and CEO.
But Gerkens noted non-asset-based business still generated healthy cash flow, which is critical for tight-margin, transaction-heavy trucking industry. Cash from operations during the 2009 first quarter increased from $34 million to $81 million year over year, with $147 million of borrowing credit available as of March 28.
Contact John Gallagher at email@example.com.