Truckload freight demand is increasing after a lackluster third quarter, rising in late September and early October, according to Swift Transportation.
“We did not see a pickup in mid-August similar to prior year industry seasonal patterns,” the largest U.S. truckload carrier said in an Oct. 22 letter to shareholders.
“However, we did experience a slight uptick in the last week of September, which has continued through the first couple weeks of October,” Swift said. “We believe that freight volumes will remain on this trend through the holiday season.”
That’s good news for other truckload carriers and shippers looking for a fourth quarter bounce and stronger-than-expected finish to a disappointing year.
Swift’s “uptick” corresponds with a 0.4 percent sequential monthly increase in the American Trucking Associations For-Hire Truck Tonnage Index for September. The seasonally adjusted index dropped 0.9 percent in August. The index also increased 0.4 percent from the previous quarter in the third quarter, ATA said today.
Year-over-year, however, ATA’s tonnage index rose only 2.4 percent last month, the smallest annualized increase since December 2009. That’s a big orange caution sign on the road to economic recovery, perhaps warning of construction ahead.
“The year-over-year deceleration in tonnage continued during September, although I was encouraged that the seasonally adjusted index edged higher from August,” ATA Chief Economist Bob Costello said in a statement. “Expect year-over-year comparisons to continue shrinking through the rest of the year as tonnage grew nicely during the last three months of 2011,” he said, rising 7.4 percent on average in the fourth quarter and 10.4 percent year-over-year in December 2011.
Costello expects for-hire truck tonnage to increase 3.5 percent this year compared with 2011, and notes that flattening manufacturing output and higher levels of inventory in shipper supply chains are eating into any increase in tonnage.
“The freight environment during the year, and especially the third quarter, has not been nearly as robust as we had hoped,” Swift CEO Jerry Moyes, COO Richard Stocking and CFO Ginnie Henkels said in their letter to shareholders.
Swift’s third-quarter performance highlights many trends shaping the truckload business as 2012 rolls to a finish — slow growth in freight demand, slimmer profits, higher fuel and driver costs but better underlying operational management.
Profits were down at several competitors, including Werner Enterprises and Heartland Express, in the quarter. Truckload yield — revenue per tractor — increased, a sign that productivity and, to some extent, pricing are still rising.
Swift’s trucking revenue, excluding fuel surcharges, fell 1.4 percent year-over-year in the third quarter to $600.7 million. Net profit dropped 10 percent to $27.6 million while total revenue was nearly flat, rising 0.8 percent to $871.1 million.
However, Swift’s weekly trucking revenue per tractor increased 3.6 percent year-over-year to $3,165, an improvement over a 3.5 percent increase a year ago.
Trucking revenue per loaded mile was up 2 percent in the quarter, and is expected to rise between 2 to 3 percent in 2012. Those increases underscore improved line management and productivity at the company, improvements evident at many truckload carriers since the recession ended three years ago. Swift improved utilization and got more money out of its equipment while running 213 fewer tractor-trailers than in the second quarter and 738 fewer trucks than a year ago.
On average, the company’s capacity was down 4.9 percent year-over-year. The percentage of miles its trucks run empty dropped to 11.4 percent — Swift’s lowest quarterly deadhead mileage percentage since the third quarter of 2006.
“We made the decision to slightly reduce our truck count to better align our capacity with market freight volumes, enabling us to generate higher returns on our assets,” the company said. Swift began to expand its fleet last month as demand rose. At the end of the quarter, the company operated 15,662 tractors and 51,926 trailers.
Swift also kept up efforts to cut the substantial debt the company accumulated when Moyes repurchased Swift in 2007. Year-to-date, the carrier cut its debt by $104 million to $1.6 billion — a reduction of $1 billion since 2008. Swift expects to cut debt an additional $30 million to $50 million in the fourth quarter.
The company’s profit margin tightened as its operating ratio rose to 91.9 percent, thanks in part to higher fuel costs and a $3.5 million increase in driver compensation from a year ago. The increase in pay and incentive bonuses helped lower Swift’s driver turnover rate — a key issue for truckload carriers struggling to hire and keep drivers.
“We continue to see positive year-over-year trends in our operational metrics despite the softness in the freight market,” said Swift. The biggest boost came from Swift’s small but fast-growing intermodal business. Intermodal revenue leaped 41.5 percent year-over-year in the quarter, and rose 8.9 percent from the second quarter. By the end of the year, Swift will have 2,000 additional intermodal containers. Swift’s revenue from intermodal and brokerage business shot up 23.8 percent from a year ago to $101.6 million.
The company is on track to end the year, if not with a bang, with a healthy bottom line. And that’s much preferable to the battering Swift and many competitors suffered in the recession. The company lost money from 2006 through 2010, returning to the black with a $90.6 million net profit in 2011 as revenue rose 13.8 percent gain to $3.3 billion.