P.A.M. earnings, revenue flat in third quarter but expected to be better in 2018

Profit and revenue for P.A.M. Transportation Services were flat in the third quarter, marking a “turning point” as 2018 results should be better than 2017, the company’s president said.

In the quarter that ended Sept. 30, earnings for the Tontitown-based carrier were $3.446 million, or 54 cents per share, compared to $3.451 million, or 53 cents per share, in the same period in 2016. Revenue, including the fuel surcharge, was $108.898 million, from $109.393 million.

Over the past three quarters, earnings have fallen 29% to $7.338 million, or $1.14 per share, from $10.378 million, or $1.54 per share in the same period in 2016. Revenue was flat at $326.949 million.

President Daniel Cushman, who was pleased with the progress in 2017, saw the third quarter as “the turning point” when comparing results to previous quarters and the same quarter in 2016.

“We are very confident that not only has our performance gap closed, in the coming year we expect to exceed this year’s results,” Cushman said. “We have made significant progress in our efforts to increase our rate per mile charge to customers, and while our progress shows minimal results this quarter, we expect that our efforts will have a larger positive impact on future results.

“I am now more optimistic about our ability to meet our performance targets than I have been since coming here in 2009 as we are beginning to see a growing sense of urgency from shippers to secure capacity at rates that more fairly compensate us for the service we provide.”

July was a difficult month for the carrier because some of its automotive customers’ plants shifted to “downtime schedules,” lasting longer than expected and leading it to scramble to “find acceptable short-term freight moves that would keep our trucks productive,” Cushman said. August and September were “strong” compared to the first seven months of 2017 “as both demand for capacity and rates began to rebound.”

However, hurricanes Harvey and Irma caused disruptions to its freight network, impacting productivity. Yet, the company experienced a “positive demand increase, particularly in our Mexico and Random Freight Divisions,” in those months.

DIVISION PERFORMANCE
The Mexico Division continues to grow and remains profitable, he said.

“It is a service that our customers gravitate toward, so opportunities continue to present themselves.”

In 2016 and the first half of 2017, rates for southbound shipments experienced “extreme downward pressure,” but the company created balance “by applying upward pressure on northbound rates.” Customers had to accept higher rates for northbound shipments “in order to retain capacity, and our customers responded accordingly.” This has allowed the carrier to “customize driver pay packages on these lanes to help retain drivers, grow our service offering and achieve close proximity to the profit levels we expect in this division.”

The Expedited and Random Freight Divisions “have been challenged the most over the last year and a half as demand and rates have been particularly depressed in these divisions,” Cushman said.

The Expedited Division, which largely has been a “substitute” linehaul for less-than-truckload carriers, struggled because of excess capacity over the past two years. But with demand starting to exceed capacity, the carrier has had more opportunities to operate as a substitute linehaul for LTL carriers. Also, more customers have requested team driver service, which the Expedited Division offers. The division not only has seen improvements in growth and profitably but also in hiring and retaining drivers.

“We are very pleased with the improvements in our Logistics Division in both revenue growth and improvement in profitability,” he said. “New leadership in this division combined with improving spot market rates have provided a growth catalyst that we expect to continue to yield positive results.”

In its brokerage or Logistics Division, revenue increased nearly 29% to $13.721 million, from $10.640 million. Operating ratio, which is a measure of the company’s expenses as a percentage of revenue, was 95.77%, compared to 99.01% in the same quarter in 2016.

DRIVER SHORTAGE ISSUE

One of the carrier’s biggest challenges continues to be the cost to “attract, train and retain enough qualified professional drivers,” Cushman said.

“This challenge has further intensified throughout 2017, pressured by increased regulation, competition from other industries and heightened competition from both for hire and private fleets.” As the market has shifted, “we are finally beginning to see opportunities to pass increased driver related costs through to customers.”

Until recently, the market was pressuring driving pay to rise and shipping rates to fall. As the deadline approaches for the electronic logging device mandate, “customers are becoming more receptive to sharing in increased driver costs in order to secure capacity,” Cushman said. Up until the Dec. 18 deadline and following it, “we expected to see a decrease in both the pool of available drivers and available truck capacity due to the unwillingness or inability of some to attain compliance with this new mandate.”

In the third quarter, total loads rose 4% to 84,611, from the same period in 2016. Revenue per mile rose 1 cent to $1.41. The number of company trucks declined by 155 trucks to 1,160 trucks, while the number of owner-operator trucks increased by 81 trucks to 648.

Average age of the carrier’s truck fleet was 1.5 years, and the average age of its trailers was 3.3 years. The “late model trucks” have improved fuel efficiency, lower maintenance cots and “contribute toward our ability to provide our customers with superior service,” Cushman said.

“Our customers, for the most part, realize that in order to continue to hire and retain qualified drivers, we need help. In order to continue to maintain our industry leading equipment standards, we need help. This help comes in the form of rate assistance.”

NATIONAL DRIVER SHORTAGE RESPONSE
In his state of the industry address, Chris Spear, president and CEO of American Trucking Associations, has said the trade organization would take a new role in addressing the driver shortage and create a Workforce Development subcommittee chaired by ATA Secretary John Smith, chairman of CRST International.

“Our industry faces several barriers that must be addressed if we’re to grow, including: establishing pre-apprenticeship and apprenticeship training programs, and hiring and training 18-21 year-olds,” Spear said. “We need interstate recognition of credentials, entry-level training standards for veterans and nonveteran employees, solutions for the impact of detention time and congestions on drivers’ hours of service and more.”

“This subcommittee will enable ATA to work closely with this Administration, Congress and state governments to solve this problem.”

The driver shortage is the top concern of the trucking industry, according to American Transportation Research Institute, the ATA’s nonprofit research organization. On Oct. 23, it announced the top 10 critical issues the industry faces, and the driver shortage is the top issue for the first time since 2006. Second on the list was the ELD mandate, which fell one position from 2016. ATA Chief Economist Bob Costello said the industry is expected to be short 50,000 drivers by the end of 2017. The industry needs to hire about 90,000 new drivers annually to meet demand.

“In addition to the sheer lack of drivers, fleets are also suffering from a lack of qualified drivers, which amplifies the effects of the shortage on carriers,” Costello said. “This means that even as the shortage numbers fluctuate, it remains a serious concern for our industry, for the supply chain and for the economy at large.”

The driver shortage declined to 36,500 drivers in 2016, from 45,000 in 2015. If current trends continue, the shortage will rise to more than 174,000 by 2026. The causes of the shortage include demographics of the aging driver population, lifestyle changes and regulatory issues.

In 2016, driver wages and benefits rose by 5% and 18%, respectively, from 2015, according to ATRI. It was the second consecutive year driver costs represented a higher percentage of overall costs than fuel.