The BOC Blast 254 – US truckload carriers warn tighter capacity ahead

US truckload carriers warn tighter capacity ahead

William B. Cassidy, Senior Editor | Jul 26, 2018 11:20AM EDT

excerpted from JOC.com

Freight demand remains strong, even in summer, carriers say, and that’s allowing them to pick and choose the most profitable freight, with peak season just ahead.

In the hottest freight market in years, the largest US truckload carriers can afford to be choosy. Inundated with freight at the start of each day, they’re selecting the most profitable loads and lanes, a strategy that increased profits significantly in the second quarter for some truckload carriers. Revenue, meanwhile, rises by double digits or high single-digit percentages.

The latest earnings reports from those truckload carriers put shippers that haven’t secured peak season capacity on notice. There’s no indication freight demand is slowing or contractual truck capacity loosening in the second-quarter earnings of Knight-Swift Transportation Holdings, Werner Enterprises, Covenant Transportation Group, or Landstar System.

(There) are signs of improved profitability wrung from higher revenue and rates and more precise management. Those profits are needed by companies reinvesting in capacity, whether new truck orders or higher driver wages, as the US economy continues to expand. And the most profitable trucking companies find it easier to reinvest and keep pace with that expansion.

“We are continuing to invest in newer trucks and trailers in 2018 to improve our driver experience, raise operational efficiency, and more effectively manage our maintenance, safety, and fuel costs,” Werner Enterprises said in a statement Monday. The Omaha-based carrier’s capital expenditures more than doubled in the first half of the year to $174.8 million.

Sign of the times: add new tractors, get rid of used ones

Chattanooga, Tennessee-based Covenant Transport took delivery of about 400 new tractors in the first half of the year, but “disposed” of approximately 465 tractors. For the full year, the carrier plans to bring in 880 new tractors and get rid of 940 used ones. At the same time, driver pay is rising. Salaries, wages, and expenses increased 7.3 cents per total mile in the quarter.

“From a capacity perspective, attracting and retaining highly qualified, over the road professional truck drivers remains our largest challenge,” Richard B. Cribbs, executive vice president and chief financial officer, said in a statement Wednesday. “Low unemployment, alternative careers, and an aging driver population are creating an increasingly competitive environment.”

“The number of loads hauled via truck in the 2018 second quarter was an all-time quarterly record and increased 11 percent over the 2017 second quarter,” Jim Gattoni, president and CEO, said in a statement Wednesday. In terms of volume, the number of dry van truckloads rose 13 percent, unsided/platform loads, 8 percent, and less than truckloads, 8 percent.

“The number of loads hauled via railroads, ocean cargo carriers, and air cargo carriers was 23 percent higher,” Gattoni said, thanks to a 32 percent increase in rail intermodal volume.

Although spot market truckload rates have dropped from recent highs in July, and transactional spot capacity has loosened slightly, Gattoni doesn’t see the freight market slowing down.

“Through the first few weeks of July our truckload volumes continue to reflect strong demand,” he said. “I expect that demand to continue through the 2018 third quarter.” When it comes to rates, “pricing conditions for truck services in the 2018 third quarter will continue to be very strong with little change in the level of demand or available truck capacity.”