US truckload carriers warn tighter capacity ahead

US truckload carriers warn tighter capacity ahead

Trucks travel on a US highway.

Freight demand remains strong, even in summer, carriers say, and that’s allowing them to pick and choose the most profitable freight, with peak season just ahead. Photo credit: Shutterstock.com.

In the hottest freight market in years, the largest US truckload carriers can afford to be choosy. Inundated with freight at the start of each day, they’re selecting the most profitable loads and lanes, a strategy that increased profits significantly in the second quarter for some truckload carriers. Revenue, meanwhile, rises by double digits or high single-digit percentages.

The latest earnings reports from those truckload carriers put shippers that haven’t secured peak season capacity on notice. There’s no indication freight demand is slowing or contractual truck capacity loosening in the second-quarter earnings of Knight-Swift Transportation Holdings, Werner Enterprises, Covenant Transportation Group, or Landstar System.

Swift Truckload and Swift Dedicated both posted adjusted operating ratios in the mid- to upper-80s, 87.4 and 85.4 percent, respectively, “a notable improvement from historical performance,” Knight-Swift Transportation Holdings said Wednesday. Knight Trucking’s adjusted operating ratio dropped 690 basis points to 77.7 percent, compared with 84.6 percent a year ago.

Werner Enterprises drew the adjusted operating ratio at its truckload unit down 340 basis points to 86.4 percent in the quarter. Heartland Express’ adjusted operating ratio rose slightly from a year ago, but remained low, at 83.4 percent. The impact of an acquisition helps explain the increase. Covenant Transport pulled its operating ratio down 620 basis points to 91.9 percent.

Those are all signs of improved profitability wrung from higher revenue and rates and more precise management. Those profits are needed by companies reinvesting in capacity, whether new truck orders or higher driver wages, as the US economy continues to expand. And the most profitable trucking companies find it easier to reinvest and keep pace with that expansion.

“We are continuing to invest in newer trucks and trailers in 2018 to improve our driver experience, raise operational efficiency, and more effectively manage our maintenance, safety, and fuel costs,” Werner Enterprises said in a statement Monday. The Omaha-based carrier’s capital expenditures more than doubled in the first half of the year to $174.8 million.

Sign of the times: add new tractors, get rid of used ones

Chattanooga, Tennessee-based Covenant Transport took delivery of about 400 new tractors in the first half of the year, but “disposed” of approximately 465 tractors. For the full year, the carrier plans to bring in 880 new tractors and get rid of 940 used ones. At the same time, driver pay is rising. Salaries, wages, and expenses increased 7.3 cents per total mile in the quarter.

Covenant’s truckload revenue increased by $16.1 million year over year in the quarter, a 17.4 percent gain attributed to a 14.2 percent increase in average freight revenue per tractor. The carrier increased that revenue with fewer team drivers, fewer average team miles per tractor, and an increase in the number of trucks that lacked drivers — 5.2 percent of its fleet.

“From a capacity perspective, attracting and retaining highly qualified, over the road professional truck drivers remains our largest challenge,” Richard B. Cribbs, executive vice president and chief financial officer, said in a statement Wednesday. “Low unemployment, alternative careers, and an aging driver population are creating an increasingly competitive environment.”

Landstar System saw revenue per load for dry van shipments rise 25 percent year over year in the quarter, while revenue per load on unsided or platform trailers rose 19 percent. That helped lift the truckload carrier’s total revenue 36 percent from a year ago to $1.183 billion. Landstar, unlike some other carriers, added capacity by contracting a net of 287 new owner-operators.

“The number of loads hauled via truck in the 2018 second quarter was an all-time quarterly record and increased 11 percent over the 2017 second quarter,” Jim Gattoni, president and CEO, said in a statement Wednesday. In terms of volume, the number of dry van truckloads rose 13 percent, unsided/platform loads, 8 percent, and less than truckloads, 8 percent.

“The number of loads hauled via railroads, ocean cargo carriers, and air cargo carriers was 23 percent higher,” Gattoni said, thanks to a 32 percent increase in rail intermodal volume.

Although spot market truckload rates have dropped from recent highs in July, and transactional spot capacity has loosened slightly, Gattoni doesn’t see the freight market slowing down.

“Through the first few weeks of July our truckload volumes continue to reflect strong demand,” he said. “I expect that demand to continue through the 2018 third quarter.” When it comes to rates, “pricing conditions for truck services in the 2018 third quarter will continue to be very strong with little change in the level of demand or available truck capacity.”

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

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