Analysts hear trucking’s good news

Although there were differences in the details for truckload and less-than-truckload carriers, top executives from both segments told the financial community in New York City that 2005 will be a strong year for freight, rates, revenues and profits. Analysts and others following the trucking industry heard the generally good news at a “global transportation conference” organized by investment banker Bear Stearns.

On the TL side, freight volumes dropped unexpectedly in March, and while April saw tonnage begin to pick up, it “was not as robust as last year,” said Kirk Thompson, president & CEO of J.B. Hunt Transportation Services Inc.

But with demand remaining strong and capacity on the TL side tight, Thompson said the fleet expects a strong second half. “In fact, the last two-plus years were good, and it’s not too likely that those conditions will change for the next few years,” he told the group.

Echoing those predictions, John Steel, sr. vp & CFO of Werner Enterprises said: “If 2004 was an A-minus year (for truckload carriers), I think 2005 will be an B-plus.” Investment in new trucks and information technology will continue to favor large TL fleets, he added, making it harder for new small fleet operations to expand overall freight capacity.

Both executives, however, said driver availability and high turnover rates continue to be a serious problem, one that will prevent either from expanding their truckload operations this year. Although J.B. Hunt has already raised driver pay by almost 10% this year, “this is a monumental problem for truckload carriers, and it won’t be fixed overnight,” Thompson said.

“This is a good year for freight demand, just not as good as last year,” said Kevin Knight, chairman & CEO of Knight Transportation Inc. His fleet plans to continue its long-term expansion, adding 400 to 450 tractors in its truckload operation, and has used operational organization and increases in pay to mitigate driver turnover to some extent. However, “We need to look beyond what truckers can do” about the driver shortage and look at the entire logistics system to make the job more attractive, he said.

Any fleet growth this year at Swift Transportation will come from dedicated operations, not truckload, Jerry Moyes, president & CEO, said, largely because it’s easier to get drivers for the more predicable schedules of dedicated lanes. He also added that while engine makers “seem much better prepared” for the switch to low emissions diesels in 2007 than they were in 2002, his fleet will take delivery of 4,000 new tractors in 2006 so “we will go into 2007 with a fresh fleet.”

Schneider National Inc. didn’t expand its fleet in 2004 “and is considering no-growth this year as well,” according to president & CEO Chris Lofgren. Instead, it will concentrate on efforts to continue “taking empty miles out of the system.” A recent $4,000 pay increase for its drivers has helped it retain drivers, as has new emphasis on quality of life issues, he said.

Even with recent wage increases, “drivers are still underpaid for what they do,” Randy Marten, chairman of Marten Transport Ltd., told the analysts. “I expect to see their wages continue to go up for the next two to five years.” Other truckload carriers making presentations to the group included U.S. Xpress, Covenant Transport, Celadon Group, Melton Truck Line and Quality Distribution. To a large extent, the LTL carriers reported little drop in freight levels for the first quarter of the year. While there seems to be more capacity available in LTL than TL, those fleets also expect rates to remain firm with moderate increase possible on a case-by-case basis. David Congdon, president & COO of Old Dominion Freight Lines Inc. said the fleet’s tonnage in the first quarter was strong and “the second quarter is starting nicely.” Despite an economy that is “not accelerating,” Overnite Corp. also “does not anticipate much of a slowdown in tonnage in the second and third quarters,” according to Leo Suggs, chairman, president & CEO.

At CNF/Con-Way, the fleet’s new president & CEO, Douglas Stotlar, saw an improvement in tonnage at the start of 2005 “even compared to a great first quarter in 2004, and it has continued to be strong.”

Business levels are also improving over 2004 at Vitran Corp., according to president & CEO Rick Gaetz, with record revenues recorded for 1Q 2005.

Yellow Roadway also reported a record performance in the first quarter with operating income doubling over 1Q04, according to William Zollars, chairman, president & CEO, who says he sees no signs of the economy slowing. He also announced that Yellow Roadway’s acquisition of regional LTL carrier U.S. Freightways will close on May 24.

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