Despite a 1.5% increase in truckload tonnage in September, freight volumes overall are down 2.2% this year compared to 2006 – with no substantial improvement in sight, according to trucking experts.
“Nearly all economic indicators suggest continued sluggishness for the trucking industry in the near term,” said Bob Costello, chief economist for the American Trucking Assns. (ATA). Though the group’s monthly for-hire truck tonnage index recorded a 1.5% gain in freight volume in September vs. a 0.8% decline in August, September’s reading points to a lackluster 2007 fall freight season, which traditionally starts in mid-to-late August and peaks in October, he said.
“We are sticking with our economic forecasts that point to below-trend growth for the overall economy and truck tonnage,” Costello noted. “We expect tonnage to remain choppy in the foreseeable future, a trend that started a couple of months ago.”
In their third-quarter earnings reports, trucking executives said stagnant freight volumes are depressing revenues and earnings, though most of the larger carriers said they remain in the black.
“With industry-wide freight tonnage down, and industry-wide truck capacity still elevated from the 2006 and early 2007 pre-buy truck deliveries, weak demand resulted in the need to take on additional low-rated broker freight,” said Steve Russell, chairman & CEO of Indianapolis-based Celadon Group.
While Celadon’s revenues for the first quarter of fiscal 2008 (comprised of July, August, and Sept. 2007) increased 4.8% to $133.8 million compared to the same period last year – with freight revenues alone up 5.8% to $113.9 million – profits plummeted 64.8% to $2.5 million.
“In this environment, our average rate per total mile, including deadhead, dropped by 3.2% to $1.346 per mile from $1.390 per mile in the prior year’s quarter,” Russell said. “Utilization, in terms of miles per truck, declined by 3.5% from the prior year. [This] combination of lower rates and utilization adversely impacted earnings.”
“The pricing environment … was increasingly competitive during the third quarter, as indicated by the decline in our revenue per hundredweight of 0.7% from the third quarter of 2006 and 0.9% sequential decline from the second quarter of 2007,” said Earl Congdon, chairman and CEO of Thomasville, NC-based Old Dominion Freight Line.
While Old Dominion recorded a 7.6% increase in revenue to $363.3 million in the third quarter compared to last year, profits stayed flat at $20 million, compared to $20.1 million in the third quarter of 2006. That pushed Old Dominion’s operating ratio up to 90.6% compared with 89.1% in the third quarter last year.
“The decline in pricing adversely impacted our operating ratio, which increased 150 basis points over the prior-year quarter, despite our continued success in realizing operating efficiencies through tonnage growth and the efficient application of our technologies,” Congdon said. “We anticipate the competitive pricing landscape will extend into 2008.”
Celadon’s Russell believes the trucking industry should be well-poised for growth once it navigates the current rough patch. “From an industry-wide perspective, new truck order data indicate truck deliveries on a rolling basis declining below the long-term replacement rate for our industry,” he said. “In addition, we believe the current freight environment will contribute to an increased number of fleet failures, and at some point we expect economic growth to produce an increase in freight tonnage. Over time, an improved supply-demand relationship should result.”