Despite a tight labor market and higher fuel costs, most Truckload and LTL carriers showed remarkably higher profits for the first quarter. For example, SCS Transportation posted net income of $2.6 million, a 97% increase over the same period last year. CNF Inc. said profits rose 47% mainly because of its Con-Way Transportation division. J.B. Hunt, the nation's largest publicly held truckload carrier, posted net income of $33 million, compared to $11.2 million a year ago.

Economists looking for a single reason will be disappointed. Industry observers say that fleets that charged for detention fees, instituted fuel surcharges early on and continued to run lean operations did best.

The big surprise was that the bogeyman of productivity loss from new hours-of-service regulations either didn't materialize as expected or was mitigated by detention fees or other factors. Speaking at the Bear Stearns Global Transportation Conference in New York in May, Kenny Vieth of A.C.T. Research estimated that fleets have seen declines of only 1%-5% due to HOS-related productivity — a far cry from the 10 to 19% many fleets had been predicting.

For some LTLs, the new rules even helped. Arkansas Best Corp. president and CEO Robert A. Young, III, told the conference that HOS rules were “economically good for us,” because it put drivers on a 24-hour schedule, rather than 18, and the extra hour of driving actually helped eliminate some inefficiencies. He added that safety aspects of the new rules would outweigh any extra costs associated with them.

For the most part, however, increasing profits are the result of an overall improving economy. First quarter Gross Domestic Product (GDP) was 4.2%, slightly higher than the 4.1% of the previous quarter. While some economists contend that the economy is leveling off, others say it is taking a breather after the 8.1% jump in the third quarter of last year.

Trucking has always been a business whose cycles track that of the economy in general. In fact, trucking is often used as an early indicator of economic conditions as consumer spending ultimately drives the lion's share of freight deliveries.

“As the economy went up, our volume went up,” says John Burton, vp-marketing at SCS. “We gained operating efficiencies from an improving economy.”

To American Trucking Assns. chief economist Bob Costello, trucking will benefit from the current low inventory levels as manufacturers and others begin to stock up to meet growing demand. “The consumer is still strong and inventories are lean. The outlook for trucking is good.” He notes that the group's tonnage index is up 6.7% in the first quarter compared to the same period last year.

While fleet owners are optimistic for the second quarter, the road may be bumpy. First, fuel costs are rising. According to Celadon Group chairman and CEO Steve Russell, fuel surcharges did the trick last year but may not do the job in 2004 if prices continue to rise. So far, diesel averages almost 25 cents more than it did a year ago and shows no signs of abating. “Fuel charges are covering 75-80% of incremental increases,” he says.

The other issue that could cause heartburn is finding qualified drivers. “Our number-one concern for '04 is driver turnover; our number two concern is driver turnover; our number three concern is drivers; our number four concern is drivers,” Marten Transport Chairman Randy Marten told the Bear Stearns audience. Added Covenant Chairman David Parker: “Everyone has a driver problem; it's putting a lid on capacity.”

There are other challenges, too. The uncertainty of another terrorist attack on the scale of Sept. 11 looms, as do less dramatic but budget-busting issues nonetheless, such as a trend toward rising tolls and increasing expenditures on security. Folks also are keeping an eye on inflation. A sharp jump could stop the recovery cold.

However, as we move into the second quarter, most industry executives are optimistic for the rest of the year. “April had started off consistent with the first quarter and the second quarter will be just as strong,” concludes SCS' Burton.