When we look at second-quarter earnings reported by large publicly traded motor carriers, the 2.1% GDP growth in the second quarter seems to portray a stronger volume environment than experienced by the trucking industry.
As in the first quarter, this is likely the result of continued high inventories because of goods pre-shipped in the fourth quarter ahead of proposed tariffs, as well as the impacts of severe winter storms and spring flooding.
Truckload operating profit margins dropped 0.8 percentage points from a year ago to 8.9%, thanks to a 1.7% revenue decline. The average fleet grew by 1.8%, but drove 4% fewer miles, and was paid 0.3% less in terms of average revenue per mile. This was a deterioration from a weak first quarter, where revenues fell 1.4% on a 1.5% average decline in truckload fleets. First-quarter miles driven were down 6.8% over the previous year, thanks to winter weather, yet fleets saw a solid 6.4% increase in revenues per mile.
More companies are breaking out dedicated truckload. While that data is not robust, there are some interesting observations. Average revenue growth was strong, at 12.5%, although it was down from 16.9% in the first quarter and down from 21.1% in fourth-quarter 2018. The average operating profit margin of 11.5% was a 1.7 percentage point improvement over the 9.8% margins reported a year ago. Fleet growth remained strong at 11.5%, same as the first quarter, though down from 2018 fourth-quarter growth of 15.7%. This is where all the new trucks are going. Despite the typical short-haul nature of dedicated operations, miles per truck rose 1.8% on a 4.8% improvement in yield (down from 6.6% in the first quarter and 8% in 2018 fourth quarter).
The less-than-truckload space proved to be a bit of an oasis in terms of pricing, but weather and weak freight continued to impact a number of carriers. Revenue dropped 1.2%, down from an increase of 2.6% in the first quarter, with a 6% average tonnage decline, on a 4.3% improvement in revenue per hundredweight (yield statistic).
This is actually stronger than it appears. YRC Worldwide’s much-weaker numbers are dragging down the average, related to their labor negotiation with the Teamsters. Excluding YRC results, tonnage only dropped 3%, with a average yield of 6.8%, implying almost 3.8% revenue growth. The average industry profit margin dropped from a record high 8.9% in the fourth quarter of 2018 to 4.2% in the second quarter of this year – but again, excluding YRC, that figure was 8.8%, an improvement of 0.9 percentage points, so LTL carriers remain an oasis in a weaker trucking industry.
Overall, trucking company results were worse than the overall economic trend would lead you to expect, impacted by weather, pre-shipping, a drop in rail industry fluidity, and a late Easter. Where we saw the greatest deterioration was in over-the-road truckload pricing. Some shippers have been under-shipping contractual freight in order to make greater use of spot truck markets. However, labor cost increases in truckload averaged 5% this past quarter, down from 9.7% in the first quarter.
I believe the inventory overhang on truckers will remain until this fall, with capital expenditure plans likely to continue to moderate as margins continue to deteriorate.
Jeff Kauffman has been a recognized transportation authority for almost 30 years, most notably heading freight transportation research for Merrill Lynch. Currently he is managing director for Loop Capital Markets and also heads Tahoe Ventures, a transportation consulting company. He can be reached at firstname.lastname@example.org.