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Truckload Seeks Right Size
Monday, 08 February 2010 00:00
Carriers attempt to calibrate capacity to demand amid cautious hope over volume gains

Truckload carriers, anticipating a gradual increase in shipments this year after a long drought, are calibrating capacity to regain some lost pricing leverage.

Knight Transportation was confident enough to order 370 Volvo tractors at the start of the month. “We believe that our improvement in miles per tractor, especially without major reductions in our tractor count, is evidence that we are in the early stages of a turnaround in the truckload freight market,” said Kevin P. Knight, chairman and CEO.

Knight’s total loads hauled increased 10.6 percent in the last quarter from a year earlier, the Phoenixbased company said, while miles per tractor rose 2.1 percent.

That helped fuel a 0.2 percent year-over-year increase in revenue, excluding fuel surcharges, to $143.9 million in the fourth quarter. However, excess capacity’s drag on pricing was clear in Knight’s 2.2 percent drop in revenue per loaded mile, and its 18.6 percent decline in net profit to $13.1 million for the quarter.

“Residual consequences” of overcapacity since 2006 and the recession “continue to manifest themselves,” Knight said. His company’s full-year profit dropped 10.1 percent in 2009 to $50.6 million on $571.5 million in revenue. Even so, Knight remained one of the most profitable carriers in trucking, with an operating ratio of 85.7.

Caution is the watchword for truckload carriers motoring into 2010, as they try to right-size their equipment to match demand. Most carriers cut trucks from their fleets last year, as trucking suffered what may have been its worst year ever.

Landstar System, a non-asset-based truckload carrier group, reduced its capacity by 5.6 percent in 2009, cutting both the number of truck brokerage fleets it used and its pool of owner-operators. At year’s end, it had the equivalent of 32,699 trucks on call, including 8,455 tractors operated by contractors it calls business capacity owners.

Landstar’s profit fell 36.5 percent to $70.3 million on $2 billion in revenue last year, but, like Knight, its business picked up in late 2009. “As we moved through the 2009 fourth quarter, both the number of loads and rate per load continued to show signs of strengthening,” said Henry Gerkens, chairman, president and CEO of the Jacksonville, Fla., company. “Through the first several weeks of January, I have seen daily volume increases of approximately 5 to 10 percent compared to January 2009.”

Fourth-quarter revenue declined 9 percent from a year earlier, but it grew 9 percent from the previous quarter. The company was able to increase its rate per load about 4 percent, as loadings increased 6 percent from the third quarter. Gerkens said he’s cautiously optimistic about 2010. “I would anticipate 2010 first-quarter revenue to increase over the 2009 first-quarter revenue in a mid- to upper-single digit range,” he said.

Fourth-quarter freight volume also firmed at Werner Enterprises, which said it is cautiously optimistic about gradual improvement in 2010. For the full year, Werner’s net profit fell 16.3 percent to $56.6 million, while revenue fell 23 percent to $1.7 billion. But the Omaha-based carrier also saw a fourth-quarter surge, with loaded miles per truck rising 2.5 percent and empty miles per trip declining 25 percent.

“The daily pre-books (ratio of loads to trucks) for the one-way truckload fleets in fourth-quarter 2009 held steady from levels achieved in September 2009,” the company said.

However, some of its freight gain may be from shippers shifting loads away from highly leveraged truckload carriers, rather than increased industrial production, Werner said. “Excess capacity in the truckload sector continues to be supported by lender leniency that is not ultimately sustainable,” it said.

Werner cut capacity last year, dropping its total tractor count 5.8 percent to 7,250 and trimming its trailer pool 4.3 percent to 23,880 pieces of rolling stock.

Among these companies, Knight appears to be the odd carrier out. With a total tractor count of 3,736, Knight has more power units available now than it did at the end of 2008, though it owns fewer of them. The carrier increased its use of owner-operators 44 percent in 2009, raising its number of contractors in its fleet to 329.

“We have made the decision to maintain our fleet size for longer-term strategy rather than short-term benefit that would likely have improved our near-term operating ratio,” Knight said.

The Journal of Commerce Online, 2/8/2010