Strong economy benefits for-hire segment

Operating ratios improve, profit margins nearly doubleFor-hire motor carriers have clearly reaped the benefits of an expanding economy. High utilization of capacity, strong exports, and increasing industrial production all contributed to motor carrier profits.For-hire carriers filing data with the Dept. of Transportation for the second quarter of 1997 showed an improved average operating ratio of

Operating ratios improve, profit margins nearly double

For-hire motor carriers have clearly reaped the benefits of an expanding economy. High utilization of capacity, strong exports, and increasing industrial production all contributed to motor carrier profits.

For-hire carriers filing data with the Dept. of Transportation for the second quarter of 1997 showed an improved average operating ratio of 94.4%, up from 96.3% during the same period last year, and a net profit margin that almost doubled.

The most notable results were reported by the top four LTL unionized carriers. ABF Freight System, Consolidated Freightways, Roadway Express, and Yellow Freight increased their average revenue per ton by 4.8% over the April to June period of 1996.

At the same time, their expenses per ton increased only 1.5% and total miles dropped by 4.1%.

Strong market conditions and increased capacity helped offset the almost 4% increase in driver pay.

Yellow Freight posted $10 million in net profits, despite the added expenses incurred during the company's restructuring.

ABF Freight System was able to lower operating expenses by 5.5%, thus increasing its overall profit margin to 2.96%, up from -1.85% a year ago.

Non-union LTL carriers also demonstrated healthy results over the second quarter of 96.

Many reported double-digit revenue increases, improving average operating ratio to 91% and net profit margin to 5.7%.

Overnite Transportation decreased operating expenses by 15% and reported a much-improved operating ratio of 95.9%, compared to 104.9% last year.

Since LTL carriers are "fixed cost" operations, when traffic rises above their break-even levels they show more profitability than truckload carriers, which have higher marginal costs.

Consequently, many non-union LTL carriers had operating ratios near 90% during the second quarter.

New Penn Motor Express continues to report one of the lowest operating ratios of 78.8%, as well as a healthy net profit margin of 12%.

General-freight truckload carriers are running near capacity and growing at a rapid pace. Overall revenues grew by 8.8% and miles increased 7.4% over the same period last year.

Lower fuel prices and increased productivity helped these carriers improve profitability slightly. The net profit margin for the group increased to 3.2%, although rate increases were practically zero. Average revenue per mile increased only 1.5%, to $1.36 from $1.34.

Still, most carriers demonstrated a marked improvement in their profitability.

USA Truck Inc. increased its revenues by 19.9%, improved its operating ratio to 88.9%, and increased its profit margins to 6%.

Barr-Nunn Transportation increased its profit margin to 2.9% from -2.9%, and its operating ratio to 92.8% from 99.6%.

Crete Carrier posted impressive results, growing revenues by 14% while maintaining a profit margin greater than 10%.

In order to grow with the economy, for-hire carriers continue to add to their rolling stock, which means the TL segment is once again faced with driver shortages.

The driver retention problem experienced in 1994 was masked somewhat by a slower economy. High growth in GDP, driven in large part from increasing exports, has again brought driver retention to the forefront. Carriers are responding by gradually increasing wages and improving benefits where possible. In addition, carriers are able to be more selective in the freight they haul and are working with shippers to ensure better conditions for drivers.

The next couple of quarters will continue to be strong, with investment spending and exports remaining high. Carriers will continue to add to their rolling stock to keep up with shipment volumes while maintaining high capacity.

(For detailed chart information, refer to story on pg. 30 and 32 of Fleet Owner's December 1997 issue.)

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