Salary cuts deep at USA Truck, Arkansas Best

Recent federal filings show big drops in operating expenses by two trucking companies based in the Fort Smith region.

That the national trucking sector is in a more than 3-year recession is no secret. Bob Costello, the chief economist for the American Trucking Associations recently noted. “While the (trucking) industry is desperate for some positive news, it is unfortunate that March’s data suggests the industry has not hit bottom just yet.”

Responding to the decline in freight tonnage and trying to preserve cash are just two of the many reasons Fort Smith-based Arkansas Best Corp. and Van Buren-based USA Truck Inc. have reduced employment and other operating expenses.

USA Truck announced April 16 a first-quarter net income loss of $1.88 million. The loss was an improvement over the $1.94 million lost in the first quarter of 2008. Total revenue in the first quarter was $93.49 million, down 26.5% from the $127.23 million in the same period of 2008.

Arkansas Best announced April 22 it lost $18.2 million in the first quarter, a wide swing from the $8.5 million earned in the same quarter of 2008. Total revenue for the quarter was $339.7 million, down 24% from the 2008 quarter.

The following are details provided by recent filings (10-Q) each company made with the U.S. Securities & Exchange Commission.

ARKANSAS BEST
• ABF Freight System — the primary subsidiary of Arkansas Best — salaries, wages and benefits were $233.49 million in the first quarter of 2009, down 9.4% from the same period in 2008.

• Total ABF operating expenses in the quarter were $368.27 million, down 15.6% from the same quarter of 2008.

• ABF’s first quarter 2009 operating results were impacted by a 15.7% year-over-year decline in tonnage per day, which was preceded by year-over-year declines in tonnage per day of 5.1% and 11.5% in the third and fourth quarters of 2008, respectively.

• In April 2009, average daily total tonnage for ABF declined 17% compared to the same period last year. “There can be no assurances that ABF will not experience further declines in tonnage levels due to a number of factors including, but not limited to, continued weakness in general economic trends.”

• On Jan. 5, 2009, ABF implemented a rate increase of 5.79% to cover known and expected cost increases. The increase affected 45% of ABF’s first quarter 2009 business, while rate increases on the remaining business are subject to individual negotiations. “ABF’s ability to retain the general rate increase and to increase rates on the remainder of its business is dependent on the competitive pricing environment.”

• ABF’s regional network — next-day and second-day service — now covers the eastern two-thirds of the United States. Management estimates that the costs of the regional initiative increased ABF’s operating ratio by 1.9 percentage points during the first quarter of 2009. Anticipated future expansion of the regional network to the Western region of the United States and the operational changes implemented during the third quarter of 2008 in the eastern two-thirds of the United States will increase the annual cost of operating this program and, depending on revenue levels, may continue to adversely effect ABF’s operating ratio in 2009.

USA TRUCK
• The company saw quarterly salaries, wages and benefits of $32.76 million, down 19% from the first quarter of 2008.

• Total operating expenses during the first quarter were $95.13 million, down 26% from the 2008 quarter.

• The deterioration in the freight environment took its toll on performance in the first quarter. The most significant impact of the deterioration was a reduction in trucking base revenue, which resulted in a 9.7% decline in tractor utilization. The reduced utilization muted the effects of the lower fuel prices.

• The company strategically targeted freight brokerage and rail intermodal for growth. Although freight brokerage base revenue declined 21.9% as a result of the overall decline in freight demand, the company continues to build its brokerage infrastructure by establishing or growing branches in Van Buren; Shreveport, La.; Springdale, Ark.; and Atlanta.

• Base revenue from the container-on-flat-car service offering grew from $0.1 million to $0.2 million. Base revenue from the Strategic Capacity Solutions division decreased 18.8% to $2.8 million primarily due to the decrease in freight brokerage revenue.

• “Looking to the next few quarters, it is hard to predict when freight demand will improve. We anticipate that freight availability will remain near historical lows for the foreseeable future, which will hinder near-term earnings. We have identified additional cost-cutting opportunities to implement during the second quarter, but we are cognizant that costs are not the primary hurdle to improving earnings for USA Truck. We are consistently among the best cost managers in the truckload industry as measured by operating costs per mile. Cutting costs too aggressively could jeopardize our ability to capitalize on the inevitable economic recovery.”