Trucking weathered a lackluster third quarter only to be hit by a hurricane. Hurricane Sandy slammed into the East Coast just as motor carriers anticipated a fourth quarter surge in shipping, basically shutting down the Northeast.
Truck traffic will bounce back in the storm’s wake, as relief shipments are rushed to a region stretching from North Carolina to Maine. Consumer demand depressed during the storm will likely spring back as well as the holidays approach.
The storm’s eventual impact on the economy is complex, with physical and economic damage likely to cost tens of billions of dollars. The post-Sandy recovery, however, could generate billions of dollars in economic activity, and freight.
Even before the storm reached shore, trucking companies such as U.S. Xpress Enterprises were preparing to move emergency supplies into the stricken region. “We have spent the last few days preparing by moving equipment from harm’s way from Maryland through New England,” U.S. Xpress President John White said on Oct. 29. “Freight flows continue to move and of course we are responding with emergency relief loads both for the government and for our customers.”
As the storm hit shore, the Chattanooga, Tenn.-based truckload carrier had more than 200 loads of relief merchandise heading north and east. “These loads are being moved from the Southeast and Midwest either to staging areas or direct to customer DC locations for redeployment after the effects of the storm are known,” White said.
No one wants to benefit from the misfortune of others, but motor carriers will welcome any post-Sandy surge in freight shipping. So far, trucking’s peak shipping season has been little more than a bump. The typical seasonal pickup in August didn’t happen, and freight demand increased a scant 0.4 percent in September, according to the seasonally adjusted For-Hire Truck Tonnage Index from the American Trucking Associations. Slackening spot market demand, which hit record highs earlier this year, indicated larger for-hire carriers had more capacity for customer freight and were handling it under contract.
“It’s not like it’s bad out there, but it’s not like there’s any noticeable pickup” in the freight economy, said Bradley S. Jacobs, chairman and CEO of XPO Logistics. “There’s no crisis in trying to find capacity, but there’s no glut of capacity either.”
As a result, “we’re able to cover loads quicker,” he said. “I look at the load board at the end of the day, and it’s pretty much cleaned up by noon these days.”
Year-over-year, however, the ATA’s tonnage index rose only 2.4 percent in September, the smallest annualized increase since December 2009. That’s a big orange caution sign on the road to economic recovery.
“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.
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.
By the end of the third quarter, the truckload sector seemed to have entered a dead calm. “We did not see a pickup in mid-August similar to prior year industry seasonal patterns,” Swift Transportation, the largest U.S. truckload carrier, said in an Oct. 22 letter to shareholders. “Freight trends for October 2012 to date have continued to trend below levels for the same period in 2011,” Werner Enterprises, the third-largest truckload operator, said in its third quarter earnings statement.
“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.
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 the 3.5 percent increase in last year’s third quarter.
Trucking revenue per loaded mile increased 2 percent in the quarter, and is expected to rise 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 the third quarter of 2011.
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.
Swift saw some encouraging signs developing in the early fourth quarter. “We did experience a slight uptick in the last week of September, which has continued through the first couple weeks of October,” the carrier 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. And Swift Transportation is one of the companies Forbes magazine suggests could get a boost on Wall Street from hurricane reconstruction.