Earnings reports are confirming that 2009 was indeed a very bad year for trucking. Yet truckload and less-than-truckload carriers along with analysts see signs of improvement in those very same numbers for 2010. However, any bump ups in freight volumes, rates, revenues and profits are likely to remain modest at best.( More LTL news)
“We continue to believe pricing has reached an inflection point for the truckload industry,” said Jon Langenfeld, transportation & logistics analyst with investment firm Robert W. Baird & Co., in the company’s monthly research brief.
“Though [TL] carriers remain guarded about bid season prospects in the first half of 2010, we believe rates have stopped deteriorating,” he said. “Ongoing capacity reductions, through below replacement demand for new trucks and carrier failures, should return the market to equilibrium during 2010.”
Langenfeld added that while freight volumes remained weak, freight trends demonstrated what he termed “seasonality” through the second half of 2009. Baird views that as evidence of an industry moving out of a trough. “Encouragingly, some carriers have noted positive year-over-year trends continuing in January,” he noted.
TL carrier Knight Transportation, for one, has reported that mileage and loads are increasing for its fleet, reflecting an uptick in trucking demand. “Although near-term challenges in the truckload industry remain, we are encouraged with the year-over-year improvement of our miles per tractor and the 10.6% increase in our total loads hauled for the fourth quarter as compared to the same period a year ago,” said Kevin Knight, chairman & CEO, in the carrier’s year-end earnings statement.
“Miles per tractor in the fourth quarter increased 2.1%, as compared to the same period last year,” he added. “Throughout 2009, the year-over-year negative difference in miles per tractor narrowed as the year progressed until now being positive for the first time in many quarters.”
For the fourth quarter, Knight saw a drop in net income of 18.6% to $13.1 million on 4% lower revenue of $167.8 million compared to the same period in 2008. For all of 2009, Knight’s net income decreased 10.1% to $50.6 million on 4% lower revenues (before fuel surcharges) of $571.5 million com compared to 2008.
Looking ahead into 2010, most TL carriers say getting higher rates is the critical goal. “All of our business segments experienced pricing pressure and resulting margin contraction aggravated by the on-going recession,” said Kirk Thompson, president & CEO of J.B. Hunt Transportation Services.
“The pressure contributed significantly to the decline in earnings for the year,” he stressed in the carrier’s year-end earnings report. “Prices must increase substantially to ensure a viable transportation industry through adequate returns. Obtaining acceptable pricing must be the most critical priority for 2010.”
Hunt’s earnings declined to 32 cents a share on 0.3% lower revenues of $877 million in the further quarter of 2009 compared to the same periods in 2008. For all of 2009, revenues declined 14% to $3.2 billion compared to 2008, with earnings per share at $1.05 in 2009 compared to $1.56 in 2008.
For LTL carriers, tougher challenges await, as noted by Baird’s Langenfeld in his research brief. “LTL industry trends continue to lag other domestic modes, with excess capacity and aggressive competitor pricing driving further yield deterioration in the fourth quarter of 2009. LTL yields will likely bottom in the first half of 2010, with excess capacity continuing to weigh on yield growth, both in 2010 and beyond, limiting LTL carrier profitability,” he added.
LTL freight volumes have stabilized, appearing to favor freight with longer lengths of haul. Langenfeld expects LTL volumes to experience only modest growth this year and lag the recovery being realized in TL volumes.
“Our results remain affected by one of the worst economic and shipping environments in decades,” said Rick O’Dell, president & CEO of LTL carrier Saia Inc. “In spite of measured cost reductions that provided partial offset, margins were negatively impacted by lower volumes and the significant year-over-year decline in yield.”
O’Dell noted in Saia’s year-end earnings report that the LTL carrier’s tonnage per workday decreased 5.6% in 2009. LTL yield decreased 11.8%, which includes the impact of lower fuel surcharges and continued pricing pressures – leading to a $9 million loss on 18% lower revenues of $849 million for the year.
“[Our] results illustrate the impact of an extremely weak and uncertain freight environment that has continued now for 40 months,” said Judy McReynolds, president & CEO of Arkansas Best, the parent company of LTL carrier ABF Freight System. “This economic recession has been unprecedented in its length and depth. Its impact on the LTL industry has accelerated the level of price competition throughout 2009, and the fourth quarter was no exception.”
Arkansas Best’s revenue dropped to $371.6 million, a per day decrease of 5.8%, from $391.2 million, in the same quarter of 2008, resulting in a net loss of 88 cents per share in the fourth quarter of 2009, versus a 44 cent per share loss in the same period of 2008. For all of 2009, Arkansas Best’s revenue declined to $1.47 billion, a per-day decrease of 19.3%, from $1.83 billion in 2008, resulting in a net loss of $2.46 per share compared to income of $1.18 per share in 2008.
“Our 2010 operating performance will continue to be challenged until some positive change occurs such as a better freight economy, improved pricing or some other industry catalyst,” McReynolds added.