Initial second-quarter earnings reports indicate rising freight volumes coupled with tighter capacity are starting to result in higher rates for motor carriers. J.B. Hunt Transportation Services noted that after six consecutive quarters of decline, overall rates in its truckload division surpassed comparisons with last year’s figures, gaining 1.2% over the same period a year ago and 6.6% from the first quarter of this year. Moreover, the carrier noted that average length of haul in 2010 is 10% greater than a year ago, magnifying the rate change.
“Firmer demand and a strengthening freight environment helped utilization improve 13% over the comparable year’s quarter” for J.B. Hunt’s truckload operations, said Kirk Thompson, president & CEO, in J.B. Hunt’s earnings release.
The carrier noted revenue from its truckload division increased 8%, despite a 13% reduction in tractors. Currently, J.B. Hunt said its tractor count stands at 2,769 compared to 3,169 in 2009.
“Non-paid empty miles per load were 14% lower in 2010 than in 2009, while demand for paid empty charges to reposition equipment was significant,” Thompson said. “Spot rates per loaded mile, excluding fuel surcharges, improved 30% on a 9% longer length of haul, compared to a year ago, and 31% sequentially from the first quarter of this year.”
Only a portion of the rate improvement can be attributed to paid deadhead charges and a surging spot market, Thompson stressed. But he added that many customers with inadequate pricing provisions agreed to modified contract terms to secure capacity, which was in ever-shorter supply as the quarter progressed.
Covenant Transportation Group pointed out similar trends are pushing up its earnings for the second quarter as well. David Parker, chairman, president & CEO, said Covenant expects to post earnings of 12 to 20 cents per diluted share in the second quarter, vs. a 22-cent loss per share during the same period last year.
“[This] is attributable to further improvements in freight rates, miles per truck, internal revenue generation initiatives and cost control efforts,” Parker said. “Based on the quarter-to-date results, we expect an improvement in average miles per tractor of approximately 7% to 8% and in average revenue per total mile (excluding fuel surcharges) of approximately 3% compared to the second quarter of 2009.”
Confidence among carriers is so strong that some are considering buying out rivals if these positive trends continue. Transport Capital Partners (TCP) noted in its Business Expectation Survey for the second quarter of 2010 that almost half of the carriers surveyed are translating optimism for the year ahead into interest in buying another company.
“The present surge of freight and general outlook for improved rates has spiked interest in acquisitions, rising from around the mid-30% range by respondents in the prior five quarters to 45% now interested,” said Richard Mikes, a partner with TCP.