High fuel pricescoupled with an ever-growing shortage of drivers is complicating efforts by trucking companies to stay profitable. Carriers, though, are reporting that they are successfully staying in the black in part by keeping a lid on capacity, thus helping sustain upward momentum for freight rates.
“We remain committed to maintaining our fleet size at approximately 7,300 trucks [and] continue to strengthen and redesign our truckload freight network to optimize and maximize increasing freight opportunities without adding trucks,” noted Werner Enterprises in the its third quarter earnings report. “As a result, we are focused on expanding our operating margin percentage to raise our returns on assets, equity and invested capital.”
Werner – which saw its third quarter earnings increase 22% to over $29.5 million on a 10% jump in total revenues to over $509.5 million compared to the same period in 2010 – added that its average revenues per total mile increased 3% in the third quarter, with contractual rate increases and a better freight mix the principal reasons for that rate improvement.
One of the reasons fleets are seeking to boost freight rates stems from the high costs of diesel fuel which, despite a steady decline that occurred from summer through late fall, remain higher than average when compared to 2010.
“High fuel prices have negatively impacted the industry for multiple consecutive quarters, and fuel surcharge programs have not adequately offset the cost,” noted Kevin Knight, chairman & CEO of Knight Transportation, which currently operates 3,939 trucks.
“When factoring in our company fuel expense, net of fuel surcharge, and the fuel expense included in our purchased transportation cost, increased fuel prices negatively impacted the operating ratio of our asset-based businesses by over 100 basis points when compared to the same period last year,” he said, noting that the average price per gallon for diesel fuel in the U.S. in the third quarter increased 31.5% to $3.87 from $2.94 for the same period of 2010.
The carrier is feeling the impact of those high prices on its bottom line. In the third quarter this year, Knight said its net income remain flat at $16.7 million versus the same period in 2010, even though total revenue increased 18.7% to $227.1 million.
For the first nine months of 2011, Knight noted its net income decreased 4.6% to $42.8 million from $44.8 million over the same period in 2010, even though year-to-date revenues increased 18.4% to $642.1 million from $542.4 million during the same stretch last year.
Driver availability also remains tight across the industry, Knight pointed out, but he believes his company’s efforts to diversify into port and rail trucking services, as well as intermodal business, will be an advantage down the road.
“We feel our decentralized model, regional freight lanes, and strong utilization provides us a competitive advantage to recruit and retain experienced driving associates,” he explained.
That bodes well if the U.S. economy maintains sluggish yet continues upward economic growth, as recent data is now indicating. For example, the Credit Managers’ Index (CMI) compiled by the National Association of Credit Management (NACM) held relatively steady in October at 53.7 after rising to 53.8 in September from 52.7 in August.
“The majority of economic indicators have been reasonably positive over the past few weeks and seem to be pointing to better months to come and the CMI index did not dispel this assumption, although the slower pace of progress reminds those paying attention that this is unlikely to be a rapid recovery for any but a handful of sectors,” noted Chris Kuehl, NACM’s chief economist, in a statement.
“The latest data on the expansion of the U.S. economy in the third quarter reinforces the notion that conditions have started to improve, and the retail data thus far has been more encouraging than not,” said Kuehl. “If one looks at the steady rebound in the financial stability of the business community over the last month, there is some reason to assume that conditions will improve even more in the last two months of the year.”
“Most of the decline took place in the favorable factors suggesting that growth is not yet ready to surge, but the fact remains that adjustments were relatively minor and remain above the trend from earlier this summer,” he added.