NEW YORK | Tough times for truckload carriers may be coming to an end, according to fleet executives addressing financial analysts at a transportation conference here yesterday. Although they differed on specifics, chief executives from some of the country’s largest carriers indicated that stronger freight activity in April and the beginning of May coupled with significant decreases in truckload capacity have laid the groundwork for rate recovery, if not now, then in the next few months.
Fuel price pressure, however, will keep revenue-per-mile growth below 1.5% until the fourth quarter of this year or the first quarter of 2009, according to predictions from the fleet executives.
The analyst transportation conference was held by Wolfe Research, a new company created by former Bear Stearns transportation group director Edward Wolfe. For the past 15 years, Wolfe had hosted a similar meeting for Bear Stearns.
Reflecting the truckload carriers’ generally positive outlook, Covenant Transport president & CEO David Parker said that his company’s revenue per truck for April and May is up 2%. “I sense something underneath is starting to happen. The next three or four months will show us something,” he said.
Characterizing overall freight demand as “reasonably stable for the last month or two,” Celadon Trucking chairman & CEO Stephen Russell told the analysts that freight rates had stopped declining in March. While Russell told FleetOwner that meaningful growth in rates “is probably a few months away,” he said that once demand begins to pick up, “pricing power will turn quickly from customers to carriers.”
Specific segments of the truckload market are already seeing volume increases, with flatbed operations cited by fleet executives as particularly strong. Some attributed flatbed strength to consolidation, while Don Cochran, CEO of Universal Truckload Services, said those operations were benefiting from strong industrial freight volumes driven by the weak U.S. dollar.
John Smith, president & CEO of CRST International, seconded that opinion. “Flatbed [volume] was up in April and May,” he said. “Capacity has been at a premium, and we’re seeing better fuel surcharge [recovery].”
Knight Transportation expects to see refrigerated freight lead the recovery, according to CFO David Jackson. “We even see an opportunity for pricing increases,” he said.
Perhaps reflecting small fleet operators exiting the industry, a number of the truckload executives also reported difficulty in covering brokered freight in the last two months.
“Smaller fleets are still struggling with fuel surcharges and freight volumes,” said Max Fuller, co-chairman of U.S. Xpress Enterprises. In comparison, “April and May was extremely strong” for his 7,500-tractor fleet, with “revenue-per-mile and rates up and deadhead miles down,” he said. “We’ve actually been overbooked for 30 days now.”
In fact, Fuller said volumes are good enough that U.S. Xpress is going back to its least profitable customers for increases in fuel surcharges. “We will walk away from customers who won’t make us whole on fuel surcharges,” he told the analysts. “We’ll take the hit on the lost volume since we can actually use that capacity now.”
The carriers indicated that they expect freight rates and volumes to strengthen despite a generally weak economy because the truckload segment has lost a significant amount of capacity over the last year. “Ten of the 11 publicly traded truckload carriers reduced their trucks by 4% or 2,100 trucks,” said John Steele, exec. vp & CFO of Werner Enterprises, who estimated that TL capacity shrank by another 42,000 trucks in the first quarter of 2008 due to carrier bankruptcies tied to increasing fuel costs.
A current two-year freight bid request by Wal-Mart is another good indicator of recovery in the truckload sector, Fuller said. “They are very good at evaluating, and they sense we’re getting closer to capacity tightening,” he said. “We expect that they will give some reasonable increases with contract and fuel surcharge improvements.”
Despite the upbeat mood, none of the truckload carriers at the Wolfe conference predicted large rate increases in the near future. Echoing his fellow fleet executives, Jerry Moyes, chairman & CEO of Swift Transportation said, “We could use 10%, but we’ll probably get 3%.”