Fuel Prices Cut Carrier, Supplier Profits
October 23, 2000
As third-quarter financial reports continue to be released, it is evident that high fuel prices have affected both trucking companies and the manufacturers that supply them.
The 21 trucking companies that have announced third quarter financial results so far have posted a combined sales gain of 7.5% from the third quarter of 1999 -- but reported a 7.5% decline in profits. While both truckload and less-than-truckload carriers had about the same percentage gain in sales, truckload carriers reported a 14.2% decline in profits compared to only a 3.7% drop for LTL carriers.
Carriers blamed the weak results on delays in adjusting rates to higher diesel fuel prices and to slowing economic growth. Several reported small declines in freight volume. Unlike reports over the previous year and a half, there were no reports of shortages of either equipment or drivers.
The weakening market conditions caused a 3.2% drop in sales and a 0.5% drop in profits from the spring to the summer quarter. Truckload carriers had a 3.6% sales drop but managed to post an 11% profit gain from cost cutting and aggressive rate increases. LTL carriers increased sales 0.9% from the spring quarter but their profits fell 9.6%, mostly due to higher fuel costs and lower equipment trade-in values.
Trucking suppliers did even worse. While Eaton and Caterpillar reported steady sales and very small profit declines overall, both reported about a 20% drop in sales to the medium and heavy truck market. Dana had a 9% fall in sales and an 83% plunge in profits, some of this due to the devaluation of the Euro currency and to a weaker light truck market. PACCAR sustained about a one-third decline in sales and profits, even though European markets strengthened.
The outlook is for continued weakening in financial results for both carriers and suppliers in the current quarter. Diesel fuel prices have risen, freight volume growth has diminished further and the used equipment surplus - while less severe - is still depressing equipment sales to smaller fleets and owner-operators. An expected reversal in diesel fuel price trends this winter and improving used equipment prices are expected to stabilize profits early next year and lead to a profits rebound later in the year.