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HURRICANE IMPACT: Truckload surprisingly good

Oct. 21, 2005
Despite the massive economic shock of hurricanes Katrina and Rita, which most notably led to a severe spike in diesel fuel prices, the initial spate of earnings reports from truckload carriers indicate the segment isn’t suffering financially in the third quarter

Despite the massive economic shock of hurricanes Katrina and Rita, which most notably led to a severe spike in diesel fuel prices, the initial spate of earnings reports from truckload carriers indicate the segment isn’t suffering financially in the third quarter.

In fact, Jacksonville, FL-based Landstar System actually benefited from the Gulf hurricanes, as it reported third quarter revenues of $676 million -- $129.8 million of it related to disaster relief efforts. Its net income was $35.6 million, a 65% jump compared to profits of $21.6 million in the same quarter last year.

“Our consolidated revenue increased by 28% compared to the same quarter in 2004 to the highest quarterly revenue in our history,” said Henry Gerkens, Landstar president & CEO.

“Revenue from our carrier segment increased 12% percent [while] global logistics revenues increased 69%,” he said. “Also, we were not only able to [find] the necessary capacity required for the disaster relief efforts but were also able to provide sufficient capacity to support a 9.5% increase in revenue, excluding revenue from hurricane relief efforts.”

Lowell, AR-based J. B. Hunt Transport Services said third-quarter profits dropped slightly compared to last year, but largely due to a $15.8-million charge against earnings related to an arbitration settlement with BNSF Railway. All told, J.B. Hunt reported third quarter earnings of $39.8 million on revenue of $801 million, compared to profits of $47.9 million on revenues of $719 million during the same period in 2004.

“Rate yields continue to improve as the loaded rate per mile, excluding fuel surcharges, increased 4.5% or $0.077 per mile relative to a year ago,” said Kirk Thompson, J.B. Hunt’s president & CEO. “The rate increases for 2005 represent historical highs, second only to the highly unusual increases in rates in 2004. Also, length of haul increased 2%, making revenue per load higher by 6.7% over the same period last year, as freight demand increased steadily throughout the quarter.”

Still, Thompson noted that with significant portions of the country’s fuel supply and refining capacity damaged by Hurricanes Katrina and Rita, fuel prices skyrocketed and reduced J.B. Hunt’s operating ratio by 80 basis points when compared to the third quarter of 2004.

“Typically, and over time, revenue from fuel surcharges paid by our customers neutralizes our increase in fuel cost,” he said. “However, in more prolonged periods of increasing fuel prices, the lag between the higher cost and the recovery of those higher costs through higher fuel surcharges results in a temporary negative impact on operating income.”

Clarence Werner, chairman, president & CEO of Omaha, NE-based truckload carrier Werner Enterprises, added that rapid swings in fuel prices continue to cloud the industry’s fiscal picture, despite rosy earnings reports for the quarter.

“With higher fuel prices, we are now in an untenable position with many customer fuel surcharge programs,” he said. “The recent hurricanes caused a shortage of refined product that escalated diesel fuel prices at the same time that crude oil prices did not increase significantly. This, in turn, showed a weakness in the truckload industry's fuel surcharge standard of a one-cent per mile increase in rate for every five-cent per gallon increase in the Department of Energy (DOE) fuel price that is used for most fuel surcharge programs. This weakness is [because] that five-cent per gallon bracket only recoups about 80% to 85% of the actual increase in the cost of fuel.”

However, aside from fuel cost worries, Werner continued to profit handsomely from strong freight demand coupled to limited trucking capacity. Net income increased slightly to $24.5 million as operating revenues jumped 19% to $504.5 million, compared to earnings of $24.3 million on revenues of $425.4 million in the third quarter of last year.

“Freight demand was solid in July and August 2005, but not as strong as the strong freight market of July and August 2004. But freight demand improved beginning the first week in September 2005 and is approximately the same as the strong freight demand during the same period in 2004,” Werner said.

Heartland Express posted a relatively modest increase in earnings of 2.8% to $17.5 million, despite a significant 16.1% jump in gross revenues to $136.2 million.

Profits soared 33.2% to $6.4 million for refrigerated carrier Marten Transport. “We continued our recent trend of increasing revenue while controlling our costs in spite of a market constrained by the number of available drivers and challenged by the high cost of fuel, “ said Marten Transport president & chairman Randolph L. Marten. He added, “we still expect fleet growth in the range of 5% to 10% for the full year of 2005.”

USA Truck said it more than doubled its profits to $4.2 million on an 11.9% increase in revenue to $95.5 million.

To view the archive of FleetOwner’s ongoing hurricane news coverage, go to www.fleetowner.com/katrina.

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