The current US trucking market, defined by tight capacity and surging volume following a devastating storm, is reminiscent of 2014, when winter storms kinked supply chains and sent rates rocketing, according to the CEO of C.H. Robinson Worldwide.
“It feels very similar to the period we are in today,” C.H. Robinson chairman and CEO John Wiehoff said during an earnings call.
Rising transportation costs took a 5.1 percentage point bite from C.H. Robinson Worldwide’s operating margin in the third quarter and sent net profit down 7.6 percent year over year to $119.2 million. However, rates that the freight brokerage and logistics company charges shippers are rising too, and are likely to climb higher as carrier price hikes boost purchased transportation costs.
There is little doubt in the industry that rates will continue to rise through this year and 2018 as the market is on a cyclical upswing, but it is not clear if December’s electronic logging device mandate will constrict capacity enough to prolong the growth in rates beyond the natural life of that cycle.
“When you see the pricing and cost lines racing upward in 2017, looking back to 2014, during the snowstorms, or late 2009 and early 2010, during the recovery from the financial crisis, you see two other periods where the cyclicality of the pricing was racing northward,” Wiehoff said Wednesday.
Purchased transportation costs rose steadily in the third quarter, increasing 6.5 percent in July and August, before jumping 11 percent in September as a result of trucking capacity shortages following the destruction of hurricanes in the US Southeast.
“Customer pricing also increased throughout the quarter but continues to lag the increase in cost,” said Andrew Clarke, chief financial officer.
The fall in margins at C.H. Robinson was padded by a 14.5 percent increase in total revenue to $3.4 billion, as revenue at North American Surface Transportation (NAST), the company’s largest unit, increased 9.6 percent to $2.5 billion. Margins in NAST shrank to 40.1 percent from 45.5 percent as operating incomes fell 11.8 percent to $151.4 million.
Truckload volume was flat, as less-than-truckload traffic increased 6.5 percent year over year and intermodal jumped 13 percent. The growth in intermodal is more than double the 6.3 percent growth of intermodal traffic recorded for the United States as a whole in the third quarter.
Revenue in the company’s freight forwarding unit skyrocketed 41.3 percent to $552.1 million as margins increased to 24 percent from 18.3 percent. Most of that revenue growth was organic, as C.H. Robinson said its recent acquisitions APC Logistics and Milgram contributed 18 percent to the surge. Operating income jumped 82.6 percent to $31.1 million.
As with trucking, ocean and air volumes and costs for the forwarding unit rose in the third quarter.