Truckload trips on 1Q hurdle

Truckload trips on 1Q hurdle

Truckload trips on 1Q hurdle

Contrary to transportation analysts’ expectations of fairly robust growth in trucking through 2005, two major truckload carriers--Covenant Transport and U.S. Xpress Enterprises--expect a recent slowdown in demand to bring first-quarter losses.

“The main factor affecting the quarter is softer than expected freight demand, which in turn is contributing to lower than planned tractor productivity and average freight revenue per loaded mile,” said Covenant chairman & CEO David R. Parker.

In fact, in Covenant’s case, capacity has loosened enough so that shippers are actually shopping among carriers for cutthroat rates.

“Some customers are using the seasonal freight downturn of the first quarter to test our resolve concerning rate increases by diverting some of the freight we have hauled to other carriers while they have options concerning alternative capacity that may not exist as demand picks up over the rest of the year,” Parker said.

Covenant expects that by the end of the first quarter (March 31), miles-per-tractor will be down between 7.5% and 8.5%. This is a sharper drop than the carrier’s earlier estimate of 3% to 4%. The decrease is attributed to shorter length of hauls and fewer team-driver tractors. Non-revenue miles are expected to increase 130 basis points to about 10%.

Although Covenant was able to increase rates, the hikes were lower than expected, with a 14 cents-per-mile increase projected over the first quarter 2004, excluding fuel surcharges. “While the expected level of increase is significant, it appears to be tracking approximately 2 to 3 cents per mile less than we had planned,” Parker said. “An additional reason for the revenue per loaded mile shortfall is that the effective date of some of our major account increases has slipped into the second quarter.”

U.S. Xpress also expects to see disappointing rate gains, excluding fuel surcharges, on a 9.5% gain, to $1.48 per loaded mile compared to the same period last year. “This increase is lower than our expectations for the first quarter due in part, we believe, to the soft freight demand, which affected our total revenues and our ability to cover higher operating costs,” U.S. Xpress stated.

The TL carrier today announced its expectation of a net loss in the range of 11- to 14 cents per share for the first quarter of 2005, a sharp contrast to the 6-cent per share profit during the same period last year. U.S. Xpress said higher operating costs such as fuel, and a 2% decline in average seated tractors stemming from driver shortages compared to 1Q 2004,were an additional strain on margins.

Fuel costs are about 30% higher than 1Q 2004, and will result in a loss of an estimated 6 cents per share, or $1.8 million.

U.S. Xpress says it is continuing to allocate its truckload assets to more profitable business units, noting that its expedited rail and dedicated contract business were particularly successful during the quarter. Regional, dedicated and over-the-road carrier Arnold Transportation, in which U.S. Xpress has a 49% equity interest, is also a bright spot in the carrier’s portfolio.

Both TL carriers expressed optimism that the expected losses in the seasonally slow first quarter will be the exception, as underlying market trends such as the strong economy and tight capacity will create an environment for higher rates and improved equipment utilization through the remainder of 2005.

According to the American Trucking Assns., truck tonnage in 2005 has been mixed, with a seasonally adjusted 2.2% decline in February after soaring a revised 5% in January.

See Tonnage shrinks in February.

TAGS: Operations
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