Trucking Turnaround? Companies Report Rising Revenue

Last year, trucking sector analysts promised better days ahead in the face of an Arkansas Business survey that saw all the top 15 trucking companies doing business in the state report declines in revenue in 2009 compared with 2008.

This year, the promise appears to be coming true.

Twelve of the 17 firms that reported 2010 revenue showed an increase compared with 2009 figures. The improvements ranged from CalArk International's 4 percent to the 46.5 percent leap reported by Hines Trucking Inc. of Prescott.

(Click here to see a PDF list of the largest trucking companies or here for a spreadsheet version. Click here to see the list of largest private fleets and here for the spreadsheet.)

Although no one interviewed for this article seemed prepared to declare total victory over the recession (a recession felt particularly keenly in trucking, which serves as a leading indicator of economic trends), industry insiders were upbeat, if cautious.

"There's no question that virtually every trucking company regardless of size is experiencing energetic freight demand," said Lane Kidd, president of the Arkansas Trucking Association. "And we're now already beginning to see companies scrambling for drivers and ordering equipment to keep up with that demand.

"We've had probably three to four quarters of solid, albeit small, increases in overall revenue, and I think the first quarter is indicative of a growing economy."

Bob Costello, chief economist for the American Trucking Associations, said, "The trucking industry is doing better because the economy is better than a year ago."

"For the total trucking industry, revenue is up 6.4 percent in the first quarter from the year earlier," he said.

ABF Freight System Inc. of Fort Smith reported $1.5 billion in 2010 revenue compared with $1.3 billion in 2009, a 15 percent increase. David Humphrey, a company spokesman, cited "the improving economy. 

"Following one of the longest and most severe recessions in our country's history, manufacturers are now starting to produce more of their products, consumers are more frequently buying various items, and, as a result, more freight is moving throughout the country. 

"ABF has handled more freight shipments and our revenue and tonnage levels have increased," Humphrey said. "As the economy continues to improve, we believe that ABF's reputation for providing value and a high level of service will allow us to add new customers and receive additional shipments from existing customers."     

The Bureau of Transportation Statistics reported last month that shipments measured by the Freight Transportation Services Index had risen 12.9 percent during the last 22 months, beginning in May 2009. That increase, however, comes after a 15.7 percent decline in the previous 16 months beginning in January 2008. And that means there's room for improvement.

Freight shipments have increased in 16 of the last 22 months, said the bureau, a division of the U.S. Department of Transportation. "In February 2011, freight shipments were at about the same level as in September 2008 when the amount of freight was early in the decline," the bureau reported.

As Jim Crowell noted, the revenue rise "is a very good thing, but you have to remember that it came from a very, very low base." Crowell is director of the Supply Chain Management Research Center at the University of Arkansas at Fayetteville.

A look backward to pre-recession days illustrates the depth of the downturn. For example, P.A.M. Transportation Services Inc. reported revenue of $400 million in 2006. However, even though the Tontitown company's revenue rose 31 percent in this latest survey, from $253 million in 2009 to $332 million in 2010, it still fell $68 million short of those more prosperous times.

And profitability is another matter altogether.

"Most analysts who track trucking predict that the fourth quarter of this year will be kind of a breakout quarter for the industry, and we'll begin to see actual net income flowing to the bottom [line]," Kidd said. "So many of the companies have been trying to simply apply what income they do have against debt service that they had to incur during the recession."


Potential Hazards

Rising fuel prices could threaten the trucking industry's recovery, or, at the very least, dampen it.

"Fuel prices will probably take some of that money that could have been net income away," Kidd said. That "and the rising cost of labor."

Crowell and Costello echoed Kidd's worries.

"Low-cost energy is what has built the U.S. economy, and, certainly, trucking is what I'd call an enabler," Crowell said.

Asked whether he saw fuel prices easing, Crowell said, "It may ease a little but I'm not an expert in global energy. My thought is that it's not going to get a lot cheaper because we're not the only ones using it," referring to demand from emerging markets like China.

"Trucking will continue to improve as long as the economy does," Costello said. "I think the rate of growth will slow because of oil prices, but I don't think at this stage of the game that it will throw us back into a recession. If they go a lot higher, that would be more troubling."


Lessons Learned

Kidd said trucking companies had learned to be more nimble in building fuel prices into their rates.

"The trucking industry has become much more adept at implementing fuel surcharge formulas, whereas a few years ago shippers were reluctant to even go there," Kidd said. "Most now realize that that $2 fuel they used to believe was going to be the norm was wishful thinking. Now, $3.50 would be a good thing. So the fuel surcharges are here to stay."

He said that this shift in thinking - a view toward the new normal perhaps - was a positive.

"The economy seems to be solid enough that it can even withstand some increases in fuel prices," he said. That's a different scenario from 2008 when fuel reached $4.50 and even $5 a gallon.

"It seemed like that was the last straw and the economy just teetered off the edge after that," Kidd said. "People don't seem to yet think that fuel prices would do that to the economy now, which is a nice signal that there's a lot of confidence out there that hasn't been out there in a long time."


The Lists

YRC Worldwide Inc., though it remains No. 1 on the list of trucking companies with significant Arkansas presence, was among those companies that experienced a decline in revenue during 2010 compared with 2009: 18 percent. That compounded a nosedive of 41 percent in 2009.

The troubled trucking giant, based in Overland Park, Kan., has embarked on a restructuring plan, but last week Fitch Ratings lowered the company's debt rating to "C." If the restructuring fails, it's bankruptcy for YRC.

FedEx Freight and J.B Hunt Transport Services retained their No. 2 and No. 3 rankings on the list. J.B. Hunt reported an 18 percent improvement in revenue last year compared with 2009.

In fact, all the companies retained their same places on the list through No. 13 CalArk International of Little Rock. Willis Shaw Express of Elm Springs placed at No. 14 last year, but dropped off this year's list when it failed to respond to the survey. Oakley Trucking Inc. of North Little Rock took its place.