Publicly owned trucking companies gain traction as U.S. economy improves

Publicly owned trucking companies gain traction as U.S. economy improves

The largest U.S. trucking companies got bigger and more profitable and handled more freight in the third quarter, as a faster-growing economy put more freight on the highways. The growth of these carriers in the quarter was limited only by difficulty putting drivers into trucks.

As industrial output and containerized imports increased, the freight economy gained muscle. Industrial production dropped in August but turned upward in September, as manufacturing activity grew for the 16th straight month, according to the Institute for Supply Management.

The U.S. economy isn’t booming, but as unemployment drops, falling to 5.8 percent nationwide in October, and gas prices at the pump fall below $3 a gallon, consumer confidence is improving, driving hope for a stronger than typical last quarter of the year.

The third quarter was the fourth period in the past five quarters in which U.S. gross domestic product expanded at a 3.5 percent rate or faster, and carriers often outpaced that growth.

U.S. shippers paid more for surface transportation, as tight capacity and rising demand gave truckload and less-than-truckload carriers alike decisive pricing power, reflected in increases in LTL revenue per hundredweight and truckload revenue per tractor per week.

The 21 public motor carriers tracked by JOC.com increased their combined revenue 10.7 percent year-over-year in the third quarter to a combined $10.74 billion, a $159.2 million gain from the second quarter, when the trucking group increased revenue 12.2 percent. The third quarter of 2014 was only the second quarter the trucking group’s combined revenue has surpassed $10 billion, and the second quarter of double-digit percentage growth in revenue.

The trucking companies’ performance spotlights the general improvement in the U.S. economy in 2014 — the third quarter marked the beginning of the sixth year of the U.S. economic recovery — over a more anemic 2013. Even in the weather-beaten first quarter, the public trucking companies increased revenue 9 percent, a higher rate than in the previous eight quarters. In the first three quarters of 2014, the trucking group increased revenue on average 11 percent, compared with 2.6 percent in the same nine-month period of 2013.

In the third quarter, the public truckload companies tracked by JOC.com increased their combined revenue 11.9 percent from a year ago to $4.4 billion, compared with a 16.7 percent increase in the second quarter and a 13.5 percent increase in the first quarter. The truckload group’s revenue dipped slightly, by $9.1 million, from the second to the third quarter, after increasing 10.3 percent sequentially from the first to the second quarter, as spring released pent-up demand suppressed by the extremely frigid winter weather. In 2013, the truckload group increased revenue 7.2 percent in the same period and in 2012, 6.7 percent.

Revenue for the LTL carrier group rose 9.9 percent year-over-year in the third quarter to $6.3 billion, following a 9.3 percent increase in the second quarter and a 6 percent increase in the first quarter. Sequentially, the LTL group raised their collective revenue 2.7 percent from the second to the third quarter, perhaps a sign of some shift of truckload freight to LTL as well as consistently strong industrial freight demand from U.S. manufacturing customers.

Eight of the nine LTL carriers in the group hauled a combined 20.9 million shipments in the quarter, a 7.5 percent increase for the same carriers from the 2013 quarter. Truckload volume growth was limited by capacity constraints — namely the driver shortage — but those companies with drivers or the money to hire them reported higher volumes. Landstar System, for example, increased the number of loads hauled 11 percent year-over-year. Werner increased average loaded miles per truck 5.3 percent, largely due to improved utilization of existing vehicles. Werner added 25 trucks from the second quarter for a total of 7,060.

Individually, 10 of the 21 public carriers reported double-digit revenue gains, compared with nine in the second quarter. On the truckload side, acquisitions boosted Heartland Express revenue 66.2 percent to $217.1 million in the quarter. Roadrunner Transportation System increased truckload revenue 54.5 percent from a year ago thanks to acquisitions in 2013 and 2014. Landstar System increased revenue 21.3 percent; Universal Truckload Services, 15.5 percent; Knight Transportation, 13.5 percent; and Celadon Trucking, 10.5 percent.

Among the LTL carriers, Old Dominion Freight Line increased revenue 20.6 percent; Saia, 13.5 percent; FedEx Freight, 13 percent; and ABF Freight System, 11.1 percent.

None of the 20 LTL and truckload companies that report a profit or loss lost money in the third quarter, and those that increased profits all did so by double-digit percentages. YRC Freight rolled out of the red to report an $8.8 million operating profit on $843 million in revenue.

The LTL group pushed its average operating ratio down 20 basis points to 92.8, while the average truckload operating ratio rose 110 basis points to 90.9. Two LTL carriers had operating ratios — a measure of profitability before taxes and other charges — below 90: FedEx Freight at 89.6 and ODFL at 83. That’s the best OR for FedEx Freight since the end of the recession. ODFL’s OR has been below 90 since the second quarter of 2011.

Among the truckload carriers, four had ORs below 90: Werner, with a 88.5 operating ratio; Swift Transportation, 87.5; Heartland, 83.3; and Knight Transportation, 82.5. USA Truck improved its profitability in the quarter, posting a 99.1 OR and a $2.7 million net profit.

The trends that drove carrier revenue, profitability and rates higher in the third quarter persisted in the early fourth quarter, with most companies reporting strong freight volumes in October. Epic congestion at the largest U.S. port complex at Los Angeles and Long Beach is pushing up demand and pricing for spot market loads moving east from the West Coast, and the potential return of the “polar vortex” and extremely cold weather that could slow or disrupt supply chains is a cloud hanging over the late fourth quarter and early 2015.

With the U.S. economy expected to grow moderately and steadily in 2015, the biggest concern for these carriers and their customers is likely to remain finding enough truck drivers to handle the increasing volume of freight and striking a balance between cost and demand.

Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc