Heartland soars as US trucking bumps capacity ceiling

Heartland soars as US trucking bumps capacity ceiling

Heartland Express increased driver wages to make sure it has drivers to handle strong demand. Photo credit: Shutterstock.com.

Business is humming in the US heartland, and especially at Heartland Express. The Iowa-based truckload carrier increased revenue 20.2 percent and net profit 21.9 percent year over year in the second quarter. That’s a sign Heartland has put any challenges connected with the acquisition of Interstate Distributor Company (IDC) in July 2017 firmly in its rear-view mirror.

“I am extremely pleased with our ability to acquire, integrate, and overhaul the operations of our recent acquisitions and return to a quarterly operating ratio which we expect will be at or near the best across our industry,” Heartland CEO Michael Gerdin said Thursday. The carrier’s non-adjusted operating revenue dropped to 85.8 in the last quarter, compared with 91.7 in the first quarter.

The company’s operating revenue rose to $155.8 million, including $22.4 million in fuel surcharges. Without the surcharges, operating revenue was up 16.1 percent, thanks primarily to higher miles driven following the $113 million acquisition of IDC, which gave Heartland greater density in the West, where five years ago it acquired Gordon Trucking for $300 million.

A truck freight market that analysts and carriers call unprecedented in strength certainly helped Heartland, the 19th-largest US truckload carrier in 2017, regain traction. US truck and intermodal shipment volumes in June rose 7.2 percent year over year, according to the Cass Freight Index, while shipper spending on transportation jumped 15.9 percent.

Those annualized increases in June were down from May, and shipments dropped month to month for the first time since January, but make no mistake, the US freight economy remains “remarkably strong,” transportation analyst Donald Broughton said in his report on the monthly index. “Capacity is tight, demand is strong, and shippers are willing to pay up for services.”

Has US ‘transportation infrastructure’ reached its limit?

Cass’s analysis shows freight demand and transportation spending in the second quarter exceeded all levels attained in 2014, the last “mini-boom” for freight, which fizzled into a slump in 2015 that lasted until the second half of last year. This February was roughly equal to the peak month in 2014. That’s why carriers are looking back to 2004-2005 for comparisons.

It’s a radical shift from two years ago, when Heartland and other truckload carriers were stuck between high capacity and inventory levels and low freight demand and even lower rates. Freight volumes didn’t improve until mid-June 2016, Gerdin said then, and that was reflected in double-digit declines in net profit and truckload revenue.

Today, demand exceeds capacity in most modes of transportation — certainly trucking and intermodal rail — by a significant margin. “We are seeing signs that the transportation infrastructure has reached its limit, at least in the short term, to accommodate higher rates of volume growth,” Broughton said. More spending, he said, is needed to extend that capacity.

That means spending on trucks, containers, trailers, chassis, but most importantly on the fundamental unit of capacity in 2018: the truck driver. Truckload and less-than-truckload carriers are pouring a fair share of the revenue and profits they’re reaping into truck driver pay and benefits, including thousands of dollars in signing bonuses available to new drivers.

Heartland on July 3 hiked driver pay for the second time in the last 10 months, raising pay for “mileage” drivers, owner-operators, hourly and salaried drivers, and team drivers. The consolidated increase amounts to $12 million, the company said. Based on division, pay starts at 40 to 49 cents per mile for truck drivers with at least six months’ experience.

That’s before any additional bonuses or pay for special skills, the company said. Heartland will recognize up to 10 years of experience when determining pay, offering more experienced drivers 45.5 to 53.5 cents per mile on the Household Goods mileage scale. The safest, most experienced drivers can earn as much as 67.5 cents per mile, Heartland said.

“This pay increase, along with our existing benefits package, is going to offer the compensation that drivers truly deserve,” Gerdin said in a statement. Just how much drivers deserve is a moving target that keeps rising, although trucking executives for years have pegged the amount at about $75,000 a year. Some large truckload carriers are pushing toward that amount.

Despite the shortage, the number of heavy-truck drivers is increasing, rising 2.6 percent last year to nearly 1,750,000 drivers, according to US Labor Department Statistics. That’s the highest number of Class 8 truck drivers on record. Where are the new drivers working? The answer apparently is not the large truckload carriers that feel a shortage most keenly.

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