Dedicated contract services, higher rates drive J.B. Hunt

Dedicated contract services, higher rates drive J.B. Hunt

J.B. Hunt.

By load volume, J.B. Hunt now hauls more dedicated freight than intermodal containers, as e-commerce is adding to dedicated trucking revenue. Photo credit: J.B. Hunt.

The higher rates J.B. Hunt Transport Services warned shippers were coming last autumn contributed to its double-digit first-quarter gains in revenue and profit, but so did an increase in dedicated trucking business. Revenue at J.B. Hunt’s Dedicated Contract Services (DCS) segment rose 26 percent from a year ago to $494.5 million in the first quarter, as the DCS unit added shipper customers.

Revenue per truck per week for the DCS division rose about 5 percent year over year, or 2 percent excluding fuel surcharges. Higher rates helped offset delays and other issues caused by severe winter weather in the first months of 2018. Within DCS, Final Mile Services (FMS) revenue leaped 75 percent, owing in part to the 2017 acquisition of Special Logistics Dedicated (SLD).

Results underscore two trucking trends

Those results spotlight two trends reshaping the trucking landscape: the rapid growth of dedicated trucking and trucking’s rising profile in e-commerce fulfillment. In terms of load volume — although not revenue or profit — J.B. Hunt is now a bigger dedicated carrier than an intermodal trucker. And growing middle- and final-mile services are pulling in e-commerce revenue.

Shippers burning through routing guides to find truck capacity are turning in larger numbers to dedicated carriage, in which fleets of trucks are secured at typically higher than over-the-road rates and for longer contract periods. That demand has fueled growth at companies such as Ryder Systems, where dedicated revenue jumped 11 percent in the fourth quarter.

In recent years, J.B. Hunt has been dedicating more of its own resources to building up its dedicated division. At the end of the first quarter, the carrier operated 1,329 more revenue-producing trucks than a year ago, and 184 more trucks than in the fourth quarter. J.B. Hunt now has 8,911 dedicated trucks, compared with 5,445 intermodal drayage tractors.

The Lowell, Arkansas-based company, which had revenue up to $7.2 billion in 2017, handled 28 percent more dedicated loads than intermodal loads in the first quarter, with dedicated volume reaching 688,350 loads, a 15.3 percent year-over-year increase and a 30 percent jump from 2015. That 15.3 percent growth rate compares with a 3 percent quarterly gain a year ago.

Intermodal revenue jumped 14.2 percent year over year to $1.07 billion, representing 55 percent of J.B. Hunt’s total revenue, as volumes rose 6.2 percent to 495,764 drayed loads. Intermodal operating profit rose 19.9 percent from a year ago to $114.2 million, delivering a 10.7 percent operating margin — the best profitability for the quarter of any division of the company.

Consultant: J.B. Hunt’s margins should improve in 2018

All divisions of J.B. Hunt “should see better margins for the rest of the year,” said Satish Jindel, president of SJ Consulting Group, Pittsburgh. “They are well positioned with freight demand increasing and the cost of truckload going up,” he said. “Right now, it’s a carrier’s market and it’s going to stay like that for a year. Weekly changes in indexes don’t change the outlook.”

J.B. Hunt’s dedicated operation also is benefiting from increased final-mile delivery opportunities, thanks in part to the company’s $136 million SLD acquisition last August, he said. SLD is a “middle-mile” carrier that connects e-commerce linehaul with last-mile hubs and local deliveries, feeding the delivery pipeline, Jindel said.

Approximately 32 percent of the 1,329 additional DCS trucks in J.B. Hunt’s service in the first quarter worked in its FMS unit, the company said. That is about 425 trucks. Higher facilities rent and the cost of expanding the FMS network tightened the DCS operating margin, which dropped from 11.4 percent in the year-ago quarter to 8.2 percent last quarter.

J.B. Hunt “started putting effort into the final mile in the last few years,” along with competitors such as XPO Logistics, Schneider National, and Ryder System, which recently acquired MXD Group. J.B. Hunt “accelerated their efforts with the middle-mile acquisition,” Jindel said. “They’re a better source now, because they’re doing the linehaul portion also as well as final mile.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.