Covenant hurt by slump in freight volume

Nov. 14, 2011
A decline in freight volumes hit Covenant Transportation Group squarely on the bottom line in the third quarter, reducing the carrier’s revenues 2.1% to $161.4 million compared to the same period last year, and leading to a net loss of $11.2 million versus profits of $1.9 million in the third quarter of 2010.

A decline in freight volumes hit Covenant Transportation Group squarely on the bottom line in the third quarter, reducing the carrier’s revenues 2.1% to $161.4 million compared to the same period last year, and leading to a net loss of $11.2 million versus profits of $1.9 million in the third quarter of 2010.

David Parker, Covenant’s chairman, president & CEO, pointed out in the carrier’s third-quarter earnings statement that an after-tax non-cash goodwill impairment charge of $9.4 million significantly added to the red ink on its balance sheet, and will seek to boost rates to help restore its profit margins.

“The simple fact is that we have not been getting enough freight revenue per tractor to justify serving all of our lanes,” he explained. “We have been working with our customers on improving this over the last year, and will continue to evaluate decisions in coordination with our customers as to which freight is worth transporting. Then, we need to agree on rates, lanes and freight levels that make sense for both of us.”

Parker added that Covenant particularly felt the impact of reduced freight volumes in its long-haul service offering throughout the entire third quarter, as miles per truck decreased versus the third quarter of 2010 by approximately 12%.

“Accentuating the loss of utilization from the slower general long-haul freight market, we experienced a moderate reduction in efficiency from the implementation of our new fully-integrated operating system software,” he noted.

Parker also pointed out that to improve profitability for Covenant’s Star Transportation regional subsidiary, the company increased rates on specific lanes that were previously below market levels: a move that boosted margins but reduced overall volumes.

“These actions contributed to improved operating profitability at that subsidiary as Star experienced an approximate 6% improvement in rate per total mile with an approximate 5% decrease in utilization for the third quarter of 2011 as compared to the third quarter of 2010,” he said.

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