Truckload carrier profits in the first quarter have been generally positive, with many companies posting year-over-year (YOY) profit increases ranging from double-digit percentiles to threefold, while few posted losses compared with year-earlier earnings.
Swift Transportation Co. Inc. in particular scored massive gains as net income rocketed to $19.4 million, which tripled 1Q 2004’s $6.4 million gain. Knight Transportation Inc. also extended profits to $12.8 million—a 38% increase YOY from $9.3 million. Marten Transport, Ltd. reported a 77% earnings increase to $4.8 million from last year’s $2.7 million. USA Truck, Inc. said its earnings more than doubled to $2.7 million compared with $1.0 million in the same period last year. Smithway Motor Xpress Corp. profits soared 50% to net $503,000, compared with $335,000 YOY.
However, some carriers reported a major downturn this quarter. U.S. Xpress Enterprises, Inc. reported a net loss of $2.1 million, compared with a $800,000 profit in 1Q 2004. Covenant Transport, Inc. saw a loss of $649,000 compared with YOY earnings of $721,000.
“Truckload results were negatively impacted by softer than expected freight demand, higher operating costs, including record high fuel prices, and difficulty attracting drivers, which resulted in an approximately 2% sequential decline in average seated tractors, when compared to the fourth quarter of 2004,” U.S. Xpress stated in a release.
Covenant concurred that a downturn in freight volumes ushered in 1Q losses.
“Softer than expected freight demand impacted both the average miles per tractor and our ability to obtain the level of rate increases we originally expected,” said David R. Parker, Covenant chairman, president & CEO. “These factors outweighed a pretty good quarter from a cost standpoint. If demand does not increase relatively soon, our goal of improving our operating ratio in 2005 compared with 2004 will be difficult to achieve.”
However, industry-wide “softer” freight demand doesn’t appear to be the case as many carriers reported substantial revenue gains, excluding fuel surcharges. For example, Swift, which had tripled its earnings, said its revenues excluding fuel surcharges rose 13.4% YOY. USA Truck described freight demand as “steady” as revenues excluding fuel surcharges increased 13.8%. Knight Transportation reported a whopping 23% revenue growth excluding fuel surcharges.
As for U.S. Xpress and Covenant, analyst Chris Brady, president of Commercial Motor Vehicle Consulting, said first-quarter losses could be due to an economic downturn in their customer base. “For example, if you’re hauling parts for GM and Ford you’d have a problem,” Brady told Fleet Owner.
Another possible crimp on earnings might be customers doing business with other carriers for more competitive rates. “It could be they got too aggressive on pricing and lost some freight to other carriers,” Brady said.
Indeed, a measured pace of rate hikes actually helped rocket USA Truck to a near-threefold profit increase. “While freight volumes were stronger than most historical first quarters, we believe that our more moderate stance on rate increases over the past five quarters relative to the truckload industry helped bolster demand for our services during the seasonally lean volumes of the first quarter,” said Robert M. Powell, chairman & CEO.
“A pricing environment [for truckload carriers] as strong as this hasn’t come in years,” CMVC’s Brady noted. “Really, at this point, truckload carriers are able to pass along their input costs, increasing rates excluding surcharges. That’s due to tight capacity—year-over-year tonnage grew more quickly than capacity.
“The only thing carriers have to watch out for is whether freight growth will remain strong through the remainder of 2005 and not to get too aggressive in expanding capacity,” Brady added. “They may not be able to because of driver shortages.”