Steady ahead: Trucking weathering sluggish economy

U.S. economic growth should remain slow for the remainder of the year, requiring motor carriers to continue to carefully manage their way forward

U.S. economic growth should remain slow for the remainder of the year, requiring motor carriers to continue to carefully manage their way forward.

“U.S. economic growth has proceeded during the past year at a pace more consistent with sustainable expansion,” said Federal Reserve Board Chairman Ben S. Bernanke in testimony before Congress last week “Despite the downshift in growth, the demand for labor has remained solid, with more than 850,000 jobs having been added to payrolls thus far in 2007 and the unemployment rate having remained at 4.5%.

“To a considerable degree, the slower pace of economic growth in recent quarters reflects the ongoing adjustment in the housing sector,” Bernankee noted. “The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards and the recent increase in mortgage interest rates. Thus, declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time.”

But carriers are managing to stay profitable despite the slow pace of growth. For example, Lowell, AR-based J. B. Hunt Transport Services said net income increased to $63.9 million on 2% higher revenues of $856 million in the second quarter this year vs. the same period in 2006.

“Thanks to healthy growth in volumes and higher prices in our intermodal segment, we were able to withstand slower net growth in our dedicated contract service segment, along with stagnant freight volumes and lower pricing in our [long-haul freight] segment,” said Kirk Thompson, Hunt president & CEO.

Omaha, NE-based Werner Enterprises said its revenues increased slightly to $531.3 million in second quarter this year, compared to $528.9 million in the second quarter of 2006, though earnings per share decreased 15%.

“Despite a continued soft freight market and the impact of fuel and higher insurance and claims costs, we’ve made sequential progress from the first quarter of 2007 when earnings per share were 36% lower than first quarter 2006,” said Clarence Werner, the carrier’s chairman. “Freight demand softness and the temporary truck supply increase caused by the trucking industry pre-buy made for continued challenging market conditions … [but] load volumes in second quarter progressively improved from April to May to June, which is a typical seasonal pattern.”

Phoenix-based Knight Transportation is actually reporting stronger business through the first half of 2007 compared to the same stretch in 2006. Year to date, total revenue has increased 10.1% to $346.7 million, while net income inched up to $34.8 million from $34 million over the same six-month period of 2006. For the second quarter, net income grew to $16.2 million on 8.7% higher revenues of $180.2 million

“Our industry continued to experience a challenging freight environment during the second quarter, as industry capacity of truckload equipment outpaced freight demand, leading to pricing pressure and lower utilization,” said Kevin Knight, the carrier’s chairman & CEO. “However, based on the sharp decline in new truck builds in 2007, following the 2006 pre-buy and a modestly growing economy, we expect the relationship between capacity and demand to reverse over the next several quarters.”

The Fed’s Bernanke also remains confident that economic growth – and thus freight levels – should strengthen as the year progresses. “Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend,” he said in his testimony.

“For the most part, financial markets have remained supportive of economic growth and excess inventories now appear to have been substantially eliminated, so should not prove a further restraint on growth,” Bernanke said. “The global economy continues to be strong and, supported by solid economic growth abroad, U.S. exports should expand further in coming quarters.”

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