Carriers remain optimistic about the resiliency of the U.S. and global economy, despite weathering the challenges brought by higher fuel costs, drivers in short supply, higher payrolls, reports of freight softening, and the upcoming EPA 2007 emissions standards.
Robert Weaver, president of Tontitown, AR-based P.A.M. Transportation Services, noted that earnings remained strong despite higher operating costs and slower demand. The company reported second quarter earnings of $3.67 million on 5.4% higher revenues of $79 million compared to the same quarter last year, with profits climbing to $6.58 million on 4.3% higher revenues of $163.4 million for the first half of 2005 compared to the same period in 2004.
“Results from our second quarter showed modest improvement in earnings as compared to the second quarter of 2004 and we achieved these results despite significant downtime at many of our automotive customers, a substantial driver pay increase, and overall softness in the general truckload sector,” Weaver noted.
“Freight demand has been acceptable and we’ve been able to pass on the bulk of our increased fuel costs to customers – not all of it, but in excess of 90%,” Steve Russell, chairman & CEO of Indianapolis-based Celadon Group, told Fleet Owner.
For its fourth fiscal quarter, Celadon’s net income increased 80% to $4.3 million on 10% higher revenues of $117 million compared to the fiscal period last year. Profits totaled $12.6 million on 9.8% higher revenues of $436.8 million for fiscal 2005, compared to a loss of $300,000 for fiscal 2004 due largely to a $6.9 million charge to write off used trailers.
Russell noted that while the “big question” facing the trucking industry is whether the U.S. and global economy can continue to grow, the recent terror attacks in London showed there is potentially more resilience to both than previously expected.
“For the last three or four years we’ve been worried about the economic impact a terrorist attack would have,” Russell explained to Fleet Owner. “But when the London attacks happened on July 7, the stock markets and currency trading remained largely unaffected and oil prices actually dropped. The attacks didn’t cause the economic disaster everyone predicted.”
The same can be said for high oil prices as well, he added. “Many people said it would be the end of the world if oil hit $50 or $60 a barrel – but here we are. The world didn’t end,” Russell said. “We have more resilience than we know.”
Chattanooga, TN-based U.S. Xpress Enterprises is another carrier hanging tough amidst a dip in freight volume along with other business uncertainties. Net income dropped substantially to $482,000 despite 3.5% higher revenues of $279.9 million in the second quarter, largely due to a $2.8 million charge U.S> Xpress took to shut down its airport-to-airport freight business. For the first half of 2005, U.S. Xpress lost $196,000 on 8.7% higher revenues of $549 million compared to profits of $5 million at the mid-point of 2004.
“Although truckload freight demand in the second quarter was lower relative to the strong demand experienced in 2004, we experienced strengthening demand late in the quarter,” said U.S. Xpress co-chairman Patrick Quinn. “We anticipate improving freight demand for the remainder of 2005 in the face of constrained supply of tractor capacity. And we are optimistic that the improved freight environment, coupled with the anticipated success in our ongoing initiatives to increase our seated trucks, achieve selected rate increases and improve our freight mix, will enable us to realize improved truckload operating margins through the remainder of 2005.”
But even relative newcomers to the industry are proving they can do well despite softening demand. Warren, MI-based Universal Truckload Services – a non-asset based flatbed, dry van, intermodal operator and freight broker – posted 52% higher profits of $4.4 million on 62% higher revenues of $127.5 million in the second quarter compared to the same period last year. The carrier posted 64.3% higher earnings of $7.9 million on 64.6% higher operating revenues of $248.5 million for the first half of 2005 compared to the same period in 2004.
“Our revenue and net income growth continues to be strong and we have been able to grow our operating revenues, both organically and through our acquisitions of Great American Lines and CrossRoad Carriers in November last year,” said Universal’s president & CEO Don Cochran. “In the second quarter, truckload, brokerage and intermodal revenues grew at 14.5%, 43.1% and 35.7%, respectively. In total, operating revenues grew by $17.3 million or 22%.”
Still, challenges remain ahead – especially when considering the impact new low-emission engine technology could have on fleet operating costs starting next year with the introduction of ultra low sulfur diesel (ULSD) fuel, said Clarence Werner, chairman and CEO of Omaha, NE-based Werner Enterprises.
“All truckload carriers will be required to use new ultra-low sulfur fuel for all of their existing trucks beginning in mid-2006 and fuel supply and delivery issues may cause pricing to increase,” Werner said. “Preliminary estimates are that the new ultra-low sulfur fuel will cause an approximate 1% to 3% decline in fuel miles per gallon. We will begin testing ultra-low sulfur fuel on existing company trucks in third quarter [this year] to determine the impact on our fuel economy,” he added.