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DG&A's Transportation Consulting Blog

b2ap3_thumbnail_Truckload-logos.jpgThe truckload sector of the freight industry is different from the LTL and small parcel segments in one important respect. Unlike the other two segments, anyone who can buy or finance the purchase of a tractor-trailer unit and drive the rig, can enter the industry. Freed from the requirement to build cross-dock facilities and/or buy sorting machines, the barriers to entry are low and there are thousands of truckload carriers throughout North America. Nevertheless, the industry has had its challenges over the last couple of years.

Revenues Dropped in 2015 and 2016

Here are links to the top 100 carriers in the United States (http://resources.inboundlogistics.com/digital/trucking_top100_chart_0916.pdf ) and Canada (http://www.todaystrucking.com/top100 ). The top 50 truckload carriers in the United States are listed in the March 20, 2017 issue of the Journal of Commerce. Altogether, the combined revenue of the Top 25 Truckload Carriers dropped 1 percent last year, to $26.9 billion, after falling 2.3 percent, to $27.1 billion, in 2015.

Swift Transportation, Schneider National, J.B. Hunt Transportation Services, Landstar System and Crete are the five largest US based carriers; TFI (formerly TransForce International), Mullen Group, TransX, Trimac Group and Bison Transport are Canada’s largest truckload carriers. It should be noted that TFI now derives roughly 50% of its revenues from the United States.

Revenue declined last year at 15 of the companies on The Journal of Commerce’s Top 25 US Truckload Carriers rankings, according to SJ Consulting Group, which prepared the data. That’s an improvement compared to 2015, when revenue fell at 19 companies. As an indicator of the weakness in pricing last year, the Cass Truckload Linehaul Index, a measure of truckload pricing excluding fuel surcharges, turned negative in March 2016 and declined for 11 straight months.

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Dr. Richard Mikes, Managing Partner of Transport Capital Partners (TCP) recently spoke on the subject of the Truckload Market on a conference call hosted by Stifel Nicolaus & Company.  Here are some excerpts from the survey results presented by Mr. Mikes. 

“The freight rate market as a whole started switching directions about a year ago. In other words, the share of the carriers reporting that their freight rates are increasing has just dropped from a high of about 80% to a low of about 10% this past month. Accordingly, we would classify rates as being stuck in neutral. Three quarters of the firms are now reporting that rates have remained the same, certainly a massive change from a year ago.”

The survey segmented carriers into two groups, those under $25 million and those over $25 million in revenue.  “Interestingly, the … (data) . . .  presents “a real divergence in rate changes. Though both large and small carriers are largely keeping rates the same, there is a spattering of smaller carriers reporting rate decreases of 5%, 10%, or even 15%. Those numbers total only 18%, but they still tell the story. The pressure is on the smaller carriers.”

The FTR survey asked carriers to indicate their expectations with respect to volume.  “After a nice bounce this quarter, about 52% of carriers expect volumes to increase over the next 12 months and a similar number expect them to remain the same. Very few say volumes will actually decrease.

The survey then looked at what carriers plan to do with respect to adding capacity in this predicted environment. “The number of carriers saying they will not add capacity remained largely constant with a temporary spike around the . . . (U.S.) . . . election. It jumped up to almost 50% around election time. Those were the feelings in the moment.

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The fourth quarter 2012 financial results for America’s leading truckload carriers tell a story of an industry going through transformation and change.  The most dramatic poster boy of this change can be seen at the largest carrier in the group, JB Hunt.  Basic point to point truckload carriage has fallen so far that it is almost irrelevant in its overall business results.

In Q4, Hunt generated about $1.33 billion in revenue (including fuel surcharges), but only about $112 million of that came from regular truckload carriage (not including fuel surcharge). That's just about 9% of revenue, down from 12% the previous year. Basic truckload's percentage of total profit at Hunt is even smaller, at just 4%.

But Hunt's strategy of focusing on intermodal and dedicated transportation seems to be working. Its intermodal business, which now accounts for 73% of total profits, saw revenue grow another 12.7% in Q4 and over 14% for the year.

Other carriers in the sector have taken notice.  Werner's trucking revenue declined .1% for the full year while its Value Added Services business, which includes dedicated and intermodal, rose 10%, as it has followed in the footsteps of JB Hunt.   Werner's Specialized Services unit, primarily Dedicated, ended the quarter with 3,295 trucks equal to 46% of its total fleet.

While the major truckload carriers reported growth in these two business sectors, growth in their core business was restrained by several key factors.  Werner reported that “there are several truckload capacity constraints including an older industry truck fleet, the higher cost of new trucks and trailers, significant safety regulatory changes and a challenging driver market.”

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