Batten down the hatches

Batten down the hatches

Big truckload players are girding themselves for an economic downturn projected to last well into next year

Big truckload players are girding themselves for an economic downturn projected to last well into next year.

Diversification seems to be the saving grace for many large truckload carriers that used to rely solely on long-haul service for the bulk of their business. Werner Enterprises, for one, credits its expansion from just a one-way van fleet to include dedicated, regional, expedited, and cross-border truckload (among other services) for lessening the impact of the third quarter’s lackluster freight market.

“Freight demand during the latter part of third quarter and the first two weeks of October has been disappointing but not unexpected, considering the turbulence and uncertainty in the financial markets,” the carrier said in its earnings statement. “Consumer spending is being affected by the current lack of confidence in the credit market and the stock market, [so] Werner is planning based on the assumption that this trend will continue – [expecting] this will result in lackluster shipping volumes this peak freight season.”

Though Werner’s revenues increased 14% to $584.1 million in third quarter compared to the same period in 2007--with earnings per share increasing 5% to 31 cents per share versus the third quarter last year--the company believes from here on out it’ll be no bed of roses for truckers.

“The severe tightening of the credit and financial markets may create significant challenges for highly leveraged carriers that have financing issues or refinancing needs,” Werner noted. “Unless freight and financial market conditions improve quickly, Werner believes there is a higher probability of increased carrier failures.”

J. B. Hunt Transport Services is also riding the bandwagon of diversification to success. It recorded net earnings of $60.3 million in the third quarter this year on 12% higher operating revenue of $996 million versus net earnings of $50.8 million in the third quarter last year. Kirk Thompson, the carrier’s president & CEO, noted that J.B. Hunt’s increase in operating revenue was primarily attributable to growth in intermodal and non-asset based integrated capacity solutions (ICS) divisions, along with sharply higher fuel surcharge revenue.

“The significant growth in our Intermodal segment reflects our solutions philosophy and our ability to execute on that strategy,” he said in J.B. Hunt’s quarterly earnings report. “While we anticipate that we will continue to be able to provide adequate capacity to meet our customers’ truck transportation needs, it has become increasingly clear that long-term value for our customers is enhanced by the conversion of as much of their freight to our best-in-class intermodal service as possible.”

Lengths of haul beyond one day’s transit – approximately 500 miles – should be considered as prime targets for conversion, Thompson noted, and likewise, J. B. Hunt remains committed to a philosophy of optimal utilization of the assets under its control. “We are prepared to take decisive action to reduce investment in under-utilized equipment and redeploy that capital toward more attractive parts of our business or to further enhance our balance sheet,” he added. “It’s part of our … transformation from the asset-based truckload company of the past to a diversified transportation solutions business with far less cyclicality, capital intensity and earnings volatility that is frequently associated with trucking.”

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