Despite disappointing first-quarter expectations from carriers such as USF Corp., Covenant Transport and U.S. Xpress Enterprises casting a pall over generally upbeat tonnage outlooks, the trucking industry remains bullish, experts say.
Richard Bell, CPA and president of consulting firm Bell & Company, told Fleet Owner that his base of clients in the small- to medium-sized truckload, have had a very successful first quarter. Bell & Company’s client base has enjoyed a tight freight market, which in turn allowed them to pass along higher rates.
“The biggest obstacle is driver retention and getting fuel surcharges; running deadhead miles has been a small problem,” Bell said.
Bell points to the continuing expansion of the manufacturing sector as a major factor for his clients’ buzzing freight activity. “What’s going to drive the industry is manufacturing and services,” he said. “And based on recent government statistics on new orders, that’s going to drive supply and demand.”
This will continue to drive freight tonnage through 2005, he said.
“That’s a good indication that [my clients] had a good first quarter,” Bell said, noting that the first and fourth quarters tend to be the slowest. “I think ‘05 will be a good year.
“However, our clients are putting that money away; there is much more prudence in our client base,” he added. “Right now they’re salting away not spending frivolously in anticipation of the next bear cycle. For example, they’re paying their debt down and acting very conservatively.”
Satish Jindel, president of S.J. Consulting, told Fleet Owner that although there have been mixed signals on whether freight capacity is soft or tight, it appears that lower-than-expected earnings are isolated cases.
“C.H. Robinson (third-party logistics provider) and FedEx (package delivery company) are not affected and there are no warnings from any other big guys,” Jindel said. “Companies with a smaller revenue base are going to see a little more volatility when comparing year-over-year earnings than others. As companies gain a larger revenue base, they get more diversified.”
But in the case of LTL giant USF, the buyout initiated by Yellow Roadway Corp. has resulted in management changes and volatility in its customer base—all company-specific issues, according to Jindel.
As 1Q earnings are expected to roll out by the end of April, Jindel said that competition from the railroad industry could impact results.
“We could see earnings fall as a result of railroads getting a little more service as their capacity issues become more manageable. Railroads were in a worse situation last year,” Jindel said, pointing out that railroads are a major competitor against truckload carriers. “I think if fuel does continue to rise, the increase in fuel surcharges could play a role in customers’ choice of modal service.”
Jindel remains optimistic that the flood of earning reports expected over the next few weeks will reinforce predictions of a strong 2005. “From a demand standpoint, it will ultimately reflect on the results. But the economy doesn’t reflect any changes,” he stated.