Truckers Looking to Haul in More Profits
Date: Monday, July 23, 2018
Source: Wall Street Journal
Trucking companies are hoping to turn the most robust freight market in a generation into stronger long-term financial footing.
Carriers are raising rates and investing in new equipment as a monthslong rally in transportation demand gives them the upper hand in setting prices with shippers.
Analysts expect strong results across the sector over the next two weeks as fleets report earnings. Capacity remains tight this summer, normally a slack period for freight, and some trucking companies are turning down loads for lack of available trucks.
“We should still see good margin performance from truckers,” said Brad Delco, a transportation analyst with Stephens Inc. “Supply-demand dynamics remain tight, and as a result pricing has been strong, partially offset by the need to raise driver wages.”
June marked the 16th straight month in which prices increased on an annual basis on trucking’s spot market, where shippers book last-minute transportation. That is the longest sustained period of pricing power for truckers since the industry was deregulated in 1980, according to online freight marketplace DAT Solutions LLC.
Yet trucking stocks haven’t risen as much as freight demand in recent months, reflecting investor caution that the current cycle may have peaked. Some analysts are concerned about carriers’ ability to recruit additional drivers in a tight labor market.
J.B. Hunt Transport Services Inc., one of the nation’s largest transportation providers and the first to release second-quarter results, set the stage last week with a 55% gain in earnings and a 24% increase in revenue compared with the same period in 2017. The Lowell, Ark.,-based carrier beat expectations and notched double-digit increases in revenue per load—a key measure of pricing strength—in its intermodal business moving freight long distances by truck and rail, and in its brokerage and trucking divisions.
Knight-Swift Transportation Holdings Inc., the largest U.S. truckload carrier, and Werner Enterprises Inc., WERN +1.14% a large trucking firm based in Omaha, Neb., are set to report results this week.
Strong demand is also expected to buoy freight brokers such as C.H. Robinson Worldwide Inc.,set to report results July 31, and less-than-truckload carriers, which combine multiple shipments on each truck. Old Dominion Freight Line Inc., one of the largest such companies, reported a 15.3% increase in daily tonnage in May from the same month a year ago.
Freight rates began climbing last summer as manufacturing activity picked up and retailers began to restock inventories, breaking a roughly two-year slump where a glut of trucks competing for cargo left carriers with little leverage on price.
An index of U.S. freight shipments by Cass Information Systems Inc. showed shipments by truck and rail rose 7.2% in June compared with the same month in 2017, with demand “exceeding capacity in most modes of transportation by a significant margin.”
Rates are surging as growth in demand outpaces supply by a wide margin. Cass said pricing for truckload services rose 9.5% in June, the largest year-over-year increase since Cass began tracking that data.
“We’ve seen an extremely strong freight market thus far in second quarter, consistently overbooked,” said John Steele, Werner’s chief financial officer at an investor conference last month in New York City. “I would characterize it as the strongest freight and rate market in my career.”
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