Trucking Trends: Fewer Companies, Rising Freight, Caution On Gas Prices

That old adage “if you bought it, a truck brought it” is as true today as ever before according to the latest report from the American Trucking Association – 2012 Trucking Trends.

Nearly 70% of the freight moved throughout this country is done so by trucks to the tune of 9.2 billion tons, or $603.9 billion in revenue during 2011, according to the report.

Industry insiders say 2012 is off to a better start, which is good news for the mending economy. It goes like this: When trucks are moving freight, manufacturers have orders to produce and retailers need product to sell because consumers are buying. This is the magic equation that may signal economic prosperity if it continues.

ATA chief economist Bob Costello said the trucking sector is in high gear as it continues to lead the national economy back from recession levels. He said truck tonnage is up 18% since bottoming out in 2009.

Stronger signs in the housing market and more natural gas fracking are part of the reason for heavier tonnage numbers so far this year. Lane Kidd is also optimistic about the sector. He talks with private and public carriers across the state who are positive with respect to freight demand.

“Arkansas trucking companies saw the best first quarter profits since 2008 led by higher rates and tighter industry capacity — trucks available for hire,” said Land Kidd, executive director for the Arkansas Trucking Association.

Kidd estimates trucking transportation provides 68,000 jobs across the state — two thirds of those are driving jobs and one-third are back-office, sales and logistical support.

Lowell-based J.B. Hunt Transport Services, last week reported record first quarter profits of $67.68 million, up 35% from the year-ago period. The company attributed its healthy gains to better pricing potential within the industry as demand outpaced supply capacity.

An industry report from Stifel Nicolaus indicates a 20% shrinkage in truckload capacity during 2011 as fleet downsizing became a major theme for large companies like J.B. Hunt, who continue to shift traditional truckloads to its intermodal segment — truck-to-train and its brokerage division that hires outside carriers to cover freight orders.

During the first quarter of 2012, intermodal comprised 60% of J.B. Hunt’s total sales which equaled $694.11 million. The Integrated Capacity Solutions brokerage division grew revenue to $97.05 million – or 8% of J.B. Hunt’s total business. These two segments are increasingly involving more independent carriers for hire than a year ago.

Kidd said while J.B. Hunt is the industry leader in intermodal operations — a brilliant plan to boost company revenue — the country’s railroads are already at capacity and carry less than 7% of the nation’s total freight. Trucks still did do most of the hauling, he said.

Kidd said truckload capacity has also been negatively impacted in recent years as more carriers left the business.

John Larkin, analyst with Stifel Nicolaus estimates 5% of the capacity shrinkage is related to bankruptcies, liquidations and repossessions during the past year.

David Humphrey, director of corporate communications with Fort Smith-based Arkansas Best Corp., said freight rates have been rising over the past few quarters, helping the company see an 11% increase in revenue through mid-March, from a year ago. That includes fuel charge reimbursements. But he added, while revenue remains strong, actual tonnage shipped was down roughly 9% from the same period in 2011.

He said the recession and ongoing recovery of the previous years have been deep and the company continues to climb its way back.

“It’s like two or three steps forward and then one back,” Humphrey said.

Arkansas Best Corp. will reports its full first-quarter earnings April 27.

J.B. Hunt and Arkansas Best have added staff in the past year to their home bases in Arkansas. J.B. Hunt employs roughly 2,600 at its corporate headquarters and shop in Lowell, while Arkansas Best has about 1,000 employees at its corporate office in Fort Smith.

Kidd and other analysts remain confident the growing economy will bode well for truckers in 2012 there are notable headwinds to consider.

Larkin said freight rates are likely to creep higher this year as capacity remains tight. He expects general contract rates to rise between 2% and 6% from a year ago.

Dry van carriers like Van Buren-based USA Truck are poised to see a 7% uptick in truckload contract rates, while refrigerated carriers like Springdale’s Willis Shaw could see a 5% boost in pricing potential, according to industry data provider, Transcore.

Higher shipping rates also add to the cost of consumer goods producing an inflationary climate, which can reduce the buying power of consumers.

Kidd said he fully expects to see $5 diesel in the next two years which could squeeze operating margins. Even though carriers try and pass those costs on as much as possible he said higher fuels costs are an ongoing concern.

Fuels costs across the industry last year totaled $142.7 billion and are expected to top $155.9 billion in 2012. That estimate was calculated using the $4.15 per gallon average diesel price this year.

He said there is also chance more carriers could exit the business once safety measures bring heightened regulations by the Federal Motor Coach Safety Administration.

“As a trade group, the Arkansas Trucking Association applauds the on-board recorder rule because we know at least one-third of all drivers falsify their driving logs on occasion. This rule is still being debated,” Kidd said.

Kim Souza with our content partner, The City Wire, is the author of this report. She can be reached by e-mail at [email protected].