Profits rise despite diesel surge

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American Trucking Associations and its research arm, the American Transportation Research Institute (ATRI), have launched a project to collect data to show the Federal Motor Carrier Safety Administration that use of split rest in sleeper berths has not degraded safety and that any changes may result in significant cost and productivity problems for many carriers.

Wal-Mart says it will reduce truck idling at its 4,000 U.S. facilities as a result of the nation’s first multi-state case that addresses idling violations. New England’s regional U.S. Environmental Protection Agency office charged trucks idled illegally at Massachusetts and Connecticut Wal-Mart stores, according to an agency statement. As part of the settlement, the chain will post “no idling” signs at every facility, train drivers on the subject and notify other delivery companies of its new policy. The consent agreement also requires the company pay a $50,000 penalty.

Freight Transportation Services Index rose half a percentage point in August to 112.4 from the July level of 111.9. This comes after two consecutive months of declining freight indices. The August 2005 level is 2 percent higher than the August 2004 level of 110.2. The base year for the index is 2000.

Jerry Moyes stepped down as Swift Transportation’s chief executive officer and chairman two months ahead of the company’s succession plan, and President Robert Cunningham now is also CEO. Director Jock Patton has been elected non-executive chairman. Moyes, who founded Swift in 1966, will remain a director.

Central Freight Lines announced last month that it had received a proposal from a company controlled by Jerry Moyes to acquire Central in a transaction priced at $2.25 per share. A special board committee is reviewing the proposal. Moyes and certain Moyes family trusts own about 31.5 percent of Central’s common stock.

Herbert Schmidt has been named chief executive officer of CFI, succeeding Glenn Brown, who remains chairman. Schmidt, who joined the company in 1984, has been president since 2000.

American Trucking Associations is asking that implementation of the Intelligence Reform and Terrorism Prevention Act not require commercial drivers to carry a passport as they already must have government-issued identification. The additional hassle and expense to obtain a passport might discourage drivers from cross-border transportation, ATA says.

Arkansas Trucking Association is fighting a Dec. 13 ballot question that would allow the state highway commission to issue up to $575 million in bonds for repairs of interstate highways and to issue new bonds when some of the old ones are retired. Association President Lane Kidd called the proposal irresponsible, saying it amounted to giving the five unelected highway commissioners a revolving credit card and a $575 million credit line to use at their will.

Trucking Company Earnings Third Quarter 2005 (in thousands)
Operating Revenues Change over 2004 Operating Expenses Change over 2004 Operating Profit Change over 2004 Net Profit Change over 2004
ABF Freight System* 451,806 5.6% 399,833 4.8% 51,973 12.5% 40,567 48.2%
Celadon Group** 117,935 13.0% 109,839 10.9% 8,096 52.2% 4,684 70.3%
Central Freight Lines 94,335 -4.3% 107,031 -2.1% -12,696 N.M. -13,429 N.M.
Con-Way Transportation* 741,366 11.3% 646,963 8.6% 94,403 33.6%
Covenant Transport 169,895 11.8% 166,045 17.2% 3,850 -62.4% 1,217 -74.4%
FedEx Freight*** 892,000 10.5% 757,000 7.5% 135,000 31.1%
FedEx Ground*** 1,220,000 14.0% 1,072,000 16.1% 148,000 0.7%
Frozen Food Express 137,539 11.7% 128,664 8.8% 8,875 83.2% 4,976 41.4%
Heartland Express 136,210 16.1% 110,878 21.0% 25,332 -1.3% 17,542 2.8%
J.B. Hunt Transport 801,140 11.5% 736,038 15.7% 65,102 -21.2% 39,843 -16.8%
Knight Transportation 146,188 28.2% 121,176 29.9% 25,012 20.4% 15,451 23.0%
Landstar System 1,719,473 20.2% 1,591,286 17.7% 128,187 62.6% 76,996 62.8%
Marten Transport 119,081 21.6% 108,309 20.3% 10,772 37.2% 6,374 33.2%
Old Dominion Freight Lines 275,076 27.9% 246,307 27.2% 28,769 33.7% 15,935 30.5%
P.A.M. Transport 88,484 11.9% 84,471 14.9% 4,013 -28.2% 2,213 -29.7%
Quality Distribution 170,626 7.7% 163,461 9.4% 7,165 -21.0% 50 -98.2%
Roadway Express 858,353 5.7% 800,098 5.2% 58,255 11.8%
SCS Transportation 284,537 10.8% 270,663 11.2% 13,874 2.6% 6,982 6.6%
Smithway Motor Xpress 57,307 17.8% 54,010 15.4% 3,297 77.4% 1,628 90.6%
Swift Transportation 812,934 11.8% 784,847 15.0% 28,087 -37.7% 12,632 -50.8%
Transport America 64,357 -2.1% 63,107 -2.8% 1,250 56.3% 433 1102.8%
USA Truck 113,155 22.5% 104,312 19.5% 8,843 75.3% 4,221 106.0%
U.S. Xpress 297,240 3.1% 287,939 4.3% 9,301 -25.1% 3,999 -26.5%
Universal Truckload Service 135,637 39.9% 128,235 39.1% 7,402 54.6% 4,645 63.3%
Werner Enterprises 504,520 18.6% 463,382 20.1% 41,138 4.1% 24,491 0.8%
Yellow Transportation 892,451 7.7% 818,987 7.0% 73,464 15.4% 85,285 52.5%
TOTAL $11,301,645 12.8% $10,324,881 12.8% $976,764 12.6% $356,735 18.2%
N.M. = Not meaningful
* Net income reported is for parent company
** The quarter ended September 30 is Celadon’s first fiscal quarter
***The quarter ended August 31 is the first fiscal quarter for FedEx Freight and FedEx Ground. Net income for segments is unavailable

Despite the unprecedented surge and volatility in diesel prices during the third quarter, the nation’s publicly traded trucking companies saw revenues grow at the same rate as expenses, and operating profits grew at about the same rate as in the second quarter.

For the three months ended Sept. 30, public carriers posted revenues that were 12.8 percent higher than the same 2004 period. Expenses also were about 12.8 percent higher. And operating profits grew 12.6 percent. Third-quarter growth in revenues, expenses and operating profits were very close to the growth reported in the second quarter (see “Carriers report strong profits,” CCJ, August 2005).

But while the aggregate performance of carriers in the third quarter looks almost like a clone of the second quarter, the third quarter was unlike any other quarter ever recorded in at least one respect: diesel price volatility. Between the beginning of the quarter in July and the end of the quarter in September, the national average retail price for diesel rose almost 80 cents, mostly due to hurricanes Katrina and Rita. But prices were rising even before Katrina, which struck at the end of August. During the week ended Aug. 15, for example, diesel prices jumped 16 cents – at the time the largest one-week increase in diesel prices. By the quarter’s end, that one-week record would be surpassed – twice.

Carriers almost universally reported an improvement in operating profits as well as growth in both revenues and expenses over the third quarter of 2004. Landstar System, for example, reported a 62.6 percent gain in operating profit during the quarter on 20.2 percent more revenues. Included in those results was $129.8 million of revenue from disaster relief efforts related to the hurricanes, principally under a contract between Landstar Express America and the Department of Transportation. In the third quarter 2004, disaster relief efforts generated $27.9 million in revenues. Excluding revenues related to disaster relief in both periods, revenues rose 9.5 percent.

Frozen Food Express posted even stronger gains in operating profit – 83.2 percent over the third quarter of 2004. “Our strong performance in 2005’s third quarter reflected the continued favorable pricing environment and effective management of our fuel surcharge programs, allowing us to offset dramatic increases in fuel costs,” said Chairman and CEO Stoney Stubbs Jr. The hurricanes meant reduced linehaul mileage, but the carrier also saw revenue attributed to hurricane relief.

Hurricane recovery needs also contributed to the 77.4 percent improvement in operating profits at Smithway Motor Xpress – the only publicly held carrier tracked by CCJ that is involved primarily in flatbed operations. “Freight demand continues to be robust,” said President and CEO Larry Owens. “The demand for building products and heavy equipment in the devastated hurricane areas is producing increasing demand for our flatbed business.”

Improved earnings weren’t universal, however. Covenant Transport saw operating profits plunge 62.4 percent. Expense growth outpaced the increase in revenues by 5.4 percentage points – the biggest difference among the publicly traded carriers.

The largest public truckload carrier, Swift Transportation, saw operating profits drop 37.7 percent. “Our results in this quarter were impacted by a very soft freight environment in July and most of August,” said President Robert Cunningham.

One unusual development was a slight drop in operating profit at Heartland Express, which is one of the industry’s most consistently strong performers. Although revenues grew at a healthy 16.1 percent, expenses rose 21 percent.


ATA tonnage index up 0.4 percent
After three consecutive monthly decreases, the American Trucking Associations’ advanced seasonally adjusted for-hire Truck Tonnage Index increased 0.4 percent in September. The increase followed a 0.8 percent contraction in August. On a seasonally adjusted basis, the index rose to 113.9 from 113.5 in September. The index in September was 1.1 percent higher than a year earlier. The baseline year for the index is 2000.

Year-to-date, the index was up 2.1 percent, compared with the same period in 2004. On a not-seasonally adjusted basis, the index fell 4.2 percent from August to 117.9. ATA Chief Economist Bob Costello said for the entire third quarter, the index slipped 0.8 percent from the second quarter, but it gained 0.8 percent from the third quarter of 2004.

Costello said that motor carriers had been anecdotally reporting solid freight levels in September and October. He also noted that at 1.1 percent, the year-over-year increase was the best rate since May of this year.


ULSD MPG seen good, supply spotty
Concerns about lost fuel economy due to the lower energy content of ultra-low-sulfur diesel are overblown if the comments of a BP fuels engineer at the Truckload Carriers Association Fuel Economy Summit in Chicago last month are accurate.

By late next year, 80 percent of the on-highway diesel sold at the retail level must meet the ULSD standard of 15 parts per million (ppm). Today’s standard is 500 ppm. ULSD could be more like 90 percent of all diesel sold because some refineries are converting to 100 percent ULSD for on-highway even though they aren’t required to do so. ULSD will be needed in order for diesel particulate filters (DPFs) – required as part of the 2007 low-emissions engine solution – to work properly.

Richard George, technical service engineer of global fuels technology for BP, told the TCA attendees that the fuel economy impact of ULSD should be less than 1 percent – if there’s any impact at all. In addition, early concerns about the lubricity of ULSD are unfounded due to additives that are used in No. 1 and No. 2 diesel fuels.

Also, although the processes used to reduce sulfur in diesel are expensive, George predicted that market forces will keep prices in line. That’s because 90 percent of the diesel sold by this time next year will be ULSD, but most fuel buyers will want today’s diesel if they can get it.

But all the news isn’t good, George says. The risk of ULSD contamination will be high because fuel pipelines and tank trailers will be used to transport fuels that contain higher sulfur content. Even small amounts of fuel left behind in pipeline valves or at the bottom of tankers could take ULSD out of spec. For example, just 10 gallons of off-highway diesel or jet fuel in a 7,500-gallon tank trailer will increase sulfur content of an ULSD load by 5 ppm, George says. Contaminated ULSD still can be sold as low-sulfur on-highway diesel.

Refineries will adjust to this challenge by producing ULSD that’s considerably lower than 15 ppm at the refinery level. But that’s not a complete solution, George says. Regions at the far end of a pipeline simply may not be able to get ULSD by pipeline. For that reason, George predicts that at least initially the Northeast will experience supply problems. That won’t be a problem for truck owners operating today’s trucks, but it could cause problems for those operating trucks built after Jan. 1, 2007.


SmartWay program weighs financing options
The Environmental Protection Agency plans to expand on its SmartWay Transport Partnership (www.epa.gov/smartway) with carriers and shippers, including a pilot program to test the idea of financing fuel-saving equipment by using a portion of the money saved to repay loans.

Mike Zatz, an EPA official working on the SmartWay initiative, told attendees at the Truckload Carriers Association Fuel Economy Summit in Chicago last month that the agency is exploring several financing initiatives to help carriers that want fuel-saving technology but lack the capital to buy it.

SmartWay has identified a number of technologies to save fuel, including idle-reduction devices, trailer aerodynamics and aluminum wheels for single wide tires. In addition, there are emissions control devices that SmartWay promotes, including diesel oxidation catalysts and particulate matter filters, that help reduce emissions, although they don’t reduce carriers’ costs.

EPA calls this suite of technology the SmartWay Technology Upgrade Kit, and is pursuing ways to help carriers adopt appropriate elements of it, Zatz told the summit. For example, SmartWay has worked with state-sponsored small business loan programs in Arkansas, Minnesota and Pennsylvania to offer attractive loan terms on SmartWay Upgrade Kits. In addition, several commercial banks, including Wachovia and Wells Fargo, have expressed interest in a national loan program to offer attractive financing to trucking companies of all sizes, Zatz said.

But perhaps the most unusual financing mechanism SmartWay is considering is a method called “performance contracting,” Zatz said. This would be similar to arrangements in the buildings sector, where energy service companies (ESCOs) buy technologies for use by companies with no initial capital outlay required by the company. Then, the companies pay a portion of the value of their energy savings to the ESCO for a predetermined period of time.

SmartWay is looking to conduct a pilot project for developing this concept for the trucking industry, Zatz said.


International to offer idle-reduction system
International Truck and Engine Corp. announced at the Truckload Carriers Association Fuel Economy Summit last month that it will offer an integrated, factory-installed reduced idle system, including an auxiliary power unit, beginning in the spring.

The International No Idle System incorporates a fuel-fired coolant heater system and a self-contained electric air conditioning system powered by the operator’s choice of battery, auxiliary power unit (APU) or 110 volt AC shore power. Production is slated to begin in May 2006.

International estimates that by reducing idling time by five hours a day, an operator could save 1,450 to 1,650 gallons of fuel a year, depending on whether the battery or APU is used.

An external, chassis-mounted fuel-fired coolant heater supplies heat for the system and is integrated into the current controls for operating the truck’s heating, ventilation and air conditioning system. The electric AC system is packaged under the bunk and accessible for maintenance from the right hand (passenger’s side) luggage compartment door. The coolant heater provides 17,000 BTUs an hour of heating, while the AC system provides 4,000 BTUs an hour of air conditioning. Components are protected from the environment by being placed inside the cab or installed in their own corrosion-resistant enclosure.

Pricing for the No Idle System was not available in late November, as negotiations with suppliers still were ongoing.


ATA: Trucking handling high fuel prices, hurricanes
All economic indicators say that the economy is weathering the storm of high fuel prices and the recent hurricanes, and that trucking hasn’t seen a major negative impact, according to Tavio Headley, staff economist for the American Trucking Associations.

Speaking to fleet executives at the 2nd annual Randall-Reilly Fall Trucking Symposium in Phoenix last month, Headley said the United States currently is enjoying a “good, but not great, economy,” thanks to a small dip in consumer spending, declining consumer confidence and rising inflation due to hurricanes Katrina and Rita.

Manufacturing output is 3 percent higher through September 2005 than at this time last year, and strong holiday retail sales are predicted, Headley said, as indicated by current levels of consumer spending and employment. Gasoline prices hopefully won’t have much impact, he said. “Adjusted for inflation, they’re not the worst they’ve ever been,” he said.

Regarding truck freight, the growth rate in revenues this year is flat with 2004, but tonnage growth has dropped sharply. Less-than-truckload carriers are enjoying the most growth in volume and revenues, at 9.0 percent and 17.9 percent, respectively. Headley envisions growth in trucking capacity due to a pre-buy before 2007 emissions standards go into effect that “could be much larger than 2002,” and some business-driven capacity requirements.
– Dean Smallwood


Panel: Carriers must find new sources for drivers
The trucking industry must improve its image and recruiting efforts, and set aside the funding to do so, if it wants to lure more drivers into the market, according to panelists at the 2nd annual Randall-Reilly Fall Trucking Symposium, held last month in Phoenix.

Kevin Burch, president and partner for Dayton, Ohio-based Jet Express, and Ray Kuntz, president and chief executive officer for Watkins & Shepard Trucking in Helena, Mont., discussed efforts to bring more people into careers as truck drivers. Burch and Kuntz are co-chairs of a joint task force formed by the American Trucking Associations and the Truckload Carriers Association to find ways to recruit more drivers.

The trucking industry’s need for drivers goes well beyond retention, Burch said. “We all know you need fresh fruit in the driver room,” but more innovation is required.

Burch focused on several demographic groups that could provide more truck drivers. Military recruits have a good work ethic, already are drug-screened and are accustomed to time schedules, and this group possibly offers an untapped market of 60,000 drivers, Burch said. ATA and TCA plans to use two websites – military.com and monster.com – to target them. Mature workers – laid-off middle management and retirees – could provide another stable labor pool, he said.

Kuntz addressed the funding issues related to recruitment. Pay raises really don’t solve anything because carriers simply are stealing one another’s drivers, he said. Watkins & Shepard has worked closely with a driving school and bank to recruit new drivers and pay for their training. After graduation, drivers join the carrier while paying off a low-interest loan for tuition. “We have to take these millions of dollars we use on classifieds and use it more effectively,” Kuntz said.
Dean Smallwood


About the Symposium
The Randall-Reilly Fall Trucking Symposium is an invitation-only networking and educational event held each November in Phoenix. At the 2nd annual Symposium, held Nov. 7-9, more than 200 attendees heard presentations on:

  • The economic outlook for trucking
  • 12 risks that carriers might overlook
  • Expanding the pool of drivers
  • Working with shippers in today’s market

Organized by Commercial Carrier Journal, the Randall-Reilly Fall Trucking Symposium was sponsored by Comdata; Cummins; Freightliner; Goodyear Tire & Rubber; Parker Hannifin Corp., Racor Division; ProMiles Software; Qualcomm; Roadranger; Shell Lubricants; Tool Comp; TravelCenters of America and Utility Trailer Manufacturing Co.

Additional coverage of the Symposium’s sessions may be found at www.ccjmagazine.com


CCJ Equipment Demand Index: Ohio, Illinois lead again

VANS
January ’05 ’04 ’03
Ohio 1 1 1
Illinois 2 2 2
Indiana 3 3 5
Texas 4 6 3
Wisconsin 5 4 4
Missouri 6 7 6
Michigan 7 8 12
Tennessee 8 5 8
New York 9 11 7
Kentucky 10 9 10
Georgia 11 10 9
Minnesota 12 14 14
California 13 18 13
N Carolina 14 12 11
New Jersey 15 16 15
FLATS
January ’05 ’04 ’03
Ohio 1 1 1
Illinois 2 2 2
Indiana 3 3 4
Texas 4 6 5
Michigan 5 4 6
Arkansas 6 5 3
Alabama 7 7 7
Kentucky 8 10 12
New York 9 18 10
Georgia 10 8 8
W Virginia 11 12 9
Missouri 12 16 14
Tennessee 13 9 13
Wisconsin 14 21 21
Louisiana 15 17 18
REEFERS
January ’05 ’04 ’03
Illinois 1 2 2
Ohio 2 4 1
Wisconsin 3 8 3
Texas 4 3 7
Missouri 5 5 10
Georgia 6 6 8
New York 7 12 9
Idaho 8 9 4
California 9 7 15
Colorado 10 14 5
Florida 11 16 13
Minnesota 12 18 11
Washington 13 10 16
Michigan 14 23 14
Iowa 15 11 6

Expect Ohio and Illinois to offer the best opportunities for spot-market freight for the three most common equipment types during January. According to the CCJ Equipment Demand Index, the largest demand for dry van freight in January 2005 was in Ohio, but Illinois was right behind with only 1 percent fewer searches. Indiana was solidly in third place with 5 percent fewer van searches than Illinois.

The same three states, in that order, led equipment searches in flatbed in January 2005, again with Ohio edging Illinois out by only 1 percent and Indiana lagging behind Illinois by only 4 percent.

In refrigerated spot-market freight, however, Illinois dominates. Ohio and Wisconsin each had 6 percent fewer searches than Illinois, and several states were close behind them.

The index, based on equipment searches performed by TransCore customers, shows the top 15 states in terms of demand for trucks in the spot market in the three most common equipment types: dry vans, flatbeds and refrigerated units. The index is intended to help fleet operators identify the most promising opportunities for backhaul and other spot-market freight in the month after its publication.