Lowell, AR-based carrier J. B. Hunt Transport Services’ strategy of allocating truckload tractors into its more-profitable dedicated and intermodal operations has paid off handsomely.
J.B. Hunt reported second quarter net earnings of $54.6 million on total operating revenue of $759 million, up from profits of $45.6 million on total revenue of $679 million in the second quarter of 2004. Kirk Thompson, president & CEO, noted that truckload revenue increased just 1% in the second quarter of 2005, compared to 7% and 12% increases in revenue from its intermodal and dedicated operations, respectively.
However, J.B. Hunt has pulled tractors away from its truckload segment and realigned them with the more profitable intermodal and dedicated segments. Compared with 2Q 2004, the company pulled 141 away from truckload (to 5,394) and added 69 and 63 tractors to intermodal and dedicated, (to 1,234 and 4,969) respectively.
J.B. Hunt’s truckload segment suffered a higher operating ratio to 89% from 87.5% in 2Q 2004. However, profitability improved in the carriers intermodal and dedicated segments to ratios of 87.5% and 87.1%, respectively. In the dedicated segment, the operating ratio improved a whopping 3.4% while intermodal enjoyed a 0.4% gain.
For the intermodal segment, beefing up trucks and operating ratios translates to an operating income of $27.0 million— a 52% jump over the same period last year. The intermodal segment saw operating income ramp up 21% to $38.5 million. The truckload segment slid 7% to $27.1 million.
“While the general freight economy slowed in the second quarter from its robust pace of 2004, there appears to be no indication that freight demand is headed into a significant downturn,” Thompson said.
“While the pace of improvement in our truck segment was not repeated in the second quarter of 2005 vs. 2004, we are very pleased,” he said. “Given the up and down freight volumes in the truckload business so far in 2005, rising and volatile fuel prices and the never ending challenge of securing and retaining enough truck drivers, we are most gratified by the earnings improvement our truck segment has achieved over the last five years.”
Thompson also stressed that less than one-third of J.B. Hunt’s revenue is derived from the traditional truckload market. “Factors that affect the truckload marketplace do not necessarily impact intermodal and our dedicated business. That’s why solid performance in intermodal and dedicated offset the impact of slower freight volumes and higher driver pay in our truck segment,” he said.
“There’s a gradual switch among certain carriers from common to dedicated freight,” said Chris Brady, president of Commercial Motor Vehicle Consulting. “Shippers are developing more complex time-sensitive supply chains and that’s requiring higher service levels from carriers.”
“Basically freight environment seems to be firm and capacity utilization is high. Definitely everyone seems to be saying that growth rate of freight has moderated from a year ago,” said Brady, adding that rates remain firm industrywide. “That will be the first signal of excess capacity-- when carriers have a truck they need to fill they’ll be more aggressive on (lower) pricing to get that freight and right now they’re not doing it.”