Steady as she goes … for now

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Though freight volumes backed off from the torrid pace we saw in June, demand remained steady across all segments.” –Kirk Thompson, president and CEO of J.B. Hunt Transport Services, from the company’s third quarter earnings report

The U.S. economy may be stalling and freight volumes may be falling, but so far at least transportation companies up and down the supply chain seem to be staying on a relatively even keel. The key words, however, are “so far” as the short-term prognosis for the economy is getting shakier by the day.

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Yet carriers such as J.B. Hunt Transport Services seem to be recovering from the “Great Recession” in good order.

Yes, I know, they are a huge company and have resources most of the smaller players in the trucking business can’t even dream of tapping into.

But remember this: J.B. Hunt, like almost every carrier out there, reduced capacity to deal with the recession and hasn’t been rebuilding its fleet during this “recovery” period. That means when they run out of truck and trailer to haul freight, they’re most likely brokering it out to other carriers – a positive variation on the “rising tide lifts all boats” theme.

J.B. Hunt said it earned $52.2 million, on $986 million in revenues during the third quarter this year, versus $40 million and $834 million, respectively, in the same period during 2009.

Overall, all of the carrier’s “money metrics” improved significantly in recent months – something Kirk Thompson, J. B. Hunt’s president and CEO, took time to note in the company’s third quarter earnings statement.

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“We continue to distance ourselves from the ‘Great Recession’ by increased revenues, operating income, net earnings and earnings per share [EPS] of 18%, 29%, 31% and 32%, respectively, over last year’s third quarter,” he said. “Though freight volumes backed off from the torrid pace we saw in June, demand remained steady across all segments.”

J.B. Hunt’s intermodal division continued to see record numbers of loads and double digit increases compared to prior periods. September 30th marked an all-time high in intermodal load count for the carrier a single day and Thompson said he expects the company to surpass one million loads for the first time later this year.

On the dedicated contract services or “DCS“ side of Hunt’s business, load volume continues to point toward steady business activity.

“Contract pricing, reflecting improvement in supply and demand balance, in both intermodal and [our truckload] segments rose sequentially from this year’s second quarter and from the same period a year ago,” Thompson added. “Assuming demand remains near current levels, we expect to see freight rates continue to rebound from the unsustainable lows we saw during the recession.”

Jon Langenfeld, senior transportation research analyst with investment firm Robert W. Baird & Co., echoes Thompson’s view concerning a “freight rate rebound” in his most recent Freight Flows brief.

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“The truckload pricing renaissance [is] intact, supported by capacity constraint,” Langenfeld said. “Spot market truck pricing has generally softened, given the less robust demand. However, expectations for rising contractual truckload rates remain intact as capacity constraints are rising. Ongoing capacity rationalization should maintain truckload pricing growth even in a slow growth economy. Traffic off the West Coast for TL and intermodal remains particularly robust.”

He added that Baird's home-grown Domestic Freight Index, which is a proxy for monthly domestic freight activity, was up 4.7% year-over-year in August, versus 5.1% in July. “Consistent with industry commentary suggesting some signs of moderation, [our] August index trends slowed as freight growth rates gradually transition into more normal seasonal patterns and as comparisons firm.”

That said, Langenfeld noted that August results were solid with the July to August sequential trend was in line with the 10 year average seasonal trend.

“Looking ahead, we expect continued emergence of more normal seasonal patterns as part of a sustainable recovery, with indications for a slow recovery,” he pointed out. “Industry commentary suggests expectations for a slow recovery and a more modest peak season as shippers remain cautiously optimistic.”

Not all the numbers are so sanguine, of course. For starters, the Ceridian-UCLA Pulse of Commerce Index (PCI), which measures of the flow of goods to U.S. factories, retailers, and consumers, fell 0.5%in September after declining 1% in August.

Then the U.S. Department of Transportation's Bureau of Transportation Statistics (BTS) darkened the freight picture by noting its Freight Transportation Services Index (TSI) dropped 0.6% in August from its July level -- a decline after two monthly increases.

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Though BTS added that the Freight TSI is up 4.4% over the last 15 months, starting in June 2009, after declining 15.3% in the previous 10 months beginning in August 2008, through the first eight months of 2010, the index declined 1.9%

It should be noted, however that the TSI measures a very broad number of output metrics, consisting of data from for-hire trucking, rail, inland waterways, pipelines and air freight. That can distort the true freight picture for truckers, to my way of thinking.

Yet perhaps the most important thing to focus on is what J.B. Hunt is doing with some of its new-found profits. First, it’s reactivating and increasing certain compensation and benefit programs for its team of employees “who sacrificed during the downturn,” Thompson said.

“We were able to make these moves as profits rebounded quicker than we had anticipated going into 2010,” he added.

But second, J.B. Hunt also made a $5 million commitment to Arkansas Children’s Hospital in the third quarter, too – supporting a pediatric critical care facility that treats children from some 45 states and from countries all over the world.

“We are honored to be able to participate in a major expansion that will greatly improve the quality of services they provide,” Thompson said.

If we can get more of such actions as freight rates (and profits) rebound in trucking, it’ll generate a lot of good karma far beyond mere gains in dollars and cents on the balance sheet of life.

What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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