As the economy goes, so goes the $682 billion trucking
industry, and then some.
Trucks move roughly 70% of all freight tonnage in the U.S. --
everything from consumable goods and housing materials to
business equipment and chemicals.
"Trucking at its core is a classic case of supply and demand,"
said Deutsche Bank analyst Robert Salmon.
Economic and freight growth typically move at the same pace.
But freight growth has outpaced the economy in the current
recovery, says economist Noel Perry of freight transportation
research firm FTR.
The growth is largely due to a "strong recovery" in
manufacturing, growing exports and inventory buildups.
But it has been a long, bumpy road from the start of the
downturn. Truckers began to see business tail off in the second
half of 2006 as the housing market soured. Things went downhill
from there, with many top fleets seeing earnings and revenue slow
or decline over the next three to four years.
Freight volumes rebounded in late 2012 as the economy
improved. But demand growth hasn't tracked higher on a steady
Demand flattened in mid-2013 as rising interest rates nicked
the housing market's recovery. Fewer home sales and refinanced
mortgages mean less demand for lumber, appliances and countless
other building and remodeling goods. Gross domestic product
growth slowed in 2013 to 1.9%, down from 2.8% in 2012.
But freight volume grew more than the economy did. Demand
improved again later in 2013 as the overall economy picked up,
but it took a hit when fierce winter storms slowed shoppers and
"It's been a fit-and-start recovery," said Eric Starks, FTR's
president. "Some parts of the economy were heating up and other
parts slowing down. Everybody was not in lock step."
With a particularly harsh winter now gone, the trucking
recovery seems on a smoother course.
"We've seen a significant rebound in overall trucking freight
volumes," Salmon said. "After the weather started to clear, there
was a lot of pent-up demand for movement of freight by retailers
Meanwhile, import volumes at West Coast ports have recently
increased. Volume matters to truckers since West Coast ports
handle about 70% of retailers' container traffic, Salmon
"When you see that pick up, you see shipments move through the
nation's supply chain," he said, adding that there's typically a
one-month lag for truckers.
Port volumes at Los Angeles, Long Beach and Oakland were up
11.5% in April vs. the earlier year and up 20% month-to-month,
Salmon says. Monthly growth was higher than the usual
seasonality-related upticks, he added.
Werner Enterprises (
) said that its daily loads in April were either the best or
second best in six years.
Old Dominion Freight Line (
) was hit hard by the severe winter, but it still logged revenue
growth of 15.2% in the first quarter vs. a year earlier and a
per-share earnings gain of 13%. "Our momentum has continued thus
far into April," CEO David Congdon said in the firm's April 24
Freight trucking is generally a low-margin business. Many
well-managed, publicly traded companies can squeeze out profit
margins above the 5% industry average.
One critical factor is capacity, which fleets have judiciously
trimmed to keep supply and demand in balance.
"We've done the exact same thing airlines did," said Bob
Costello, chief economist with the American Trucking Associations
(ATA), a federation of multiple trucking trade groups. "We're
operating about 8% fewer trucks than at the end of 2007, prior to
Truckers with IBD's highest earnings-per-share rankings
include Old Dominion,Saia (
),Quality Distribution (
) andKnight Transportation (
In the face of improving business fundamentals, truckers are
starting to add capacity again.
"(Trucking companies) will purchase trucks roughly a half year
before they need them in anticipation of what volume will be,"
The North American trucking industry peaked at 360,000 newly
purchased large trucks in 2006, Perry says. FTR expects 290,000
new truck buys this year, up from 265,000 last year. Truckers are
"buying up a little bit of growth. They would be buying more if
they could find drivers," he said, pointing out the industry's
perennial lack of skilled labor.
Old Dominion recently increased its 2014 capital budget by an
extra $25 million for tractors and trailers to $1.88 million,
which also includes some related equipment.
The bigger trucking companies do a lot of contract freight
work withWal-Mart (WMT),Target (TGT),Home Depot (HD),Procter
& Gamble (PG) and their like, Costello says.
Contract rates being negotiated now are up 5% over last year,
says Perry. Spot rates were up 15% in April, though down a bit
Expanding Customer Base
Not only are rates improving, but the customer base may be
expanding as well.
"Kraft Foods (KRFT) just got rid of its private fleet. So it
will go entirely to 'for-hire' trucks," Costello said.
Wal-Mart runs its own huge fleet of trucks but also hires
"tons of companies" to help get all its goods to distribution
centers and stores, he says.
The retail giant may be hurting from slower sales and profits,
but it is still adding more stores, all of which need products to
fill shelves. And current stores constantly need
Most of the big names in trucking haul for Wal-Mart, Costello
says,Swift Transportation (SWFT) being the largest. Swift is the
biggest trucking company in the U.S. by fleet size. Winter storms
played havoc on its first-quarter results; earnings fell 43% from
a year ago.
Swift focuses heavily on what in industry parlance is called
full truckloads, or simply truckloads, as opposed to
less-than-truckloads, or LTLs.
As the name implies, full-truckload carriers move full loads
-- for one customer. The truck goes from one point to another in
long or short hauls. Werner, Knight,Heartland Express (HTLD)
andJ.B. Hunt (JBHT) are all full-load carriers.
J.B. Hunt is also the biggest player in intermodal transport.
Intermodal involves moving a customer's load from a shipping
container to a truck at a port, rail terminal or other location
for further transport.
Another subsector, tanker trucks, is doing well hauling sand,
water and chemicals in and out of fracking sites, Costello
Tanker-truck operator Quality Distribution runs the largest
chemical bulk logistics network in North America and also
provides transportation to unconventional oil and gas sites,
including the Bakken Shale in North Dakota and Eagle Ford Shale
LTL carriers collect partial loads from multiple shippers and
consolidate them on one vehicle. The consolidated loads are moved
to distribution terminals, where they are sorted and placed on
other trucks for various final destinations.
LTL carriers build and manage terminals and networks of
trucks. The LTL sector is smaller than the full-truckload sector,
but yields are higher.
"Cost per mile is probably comparable to the truckload
business. But it's a business with better operating margins in
general," said David Campbell, analyst with Thompson, Davis &
Old Dominion is the largest LTL carrier.Con-way (CNW),ArcBest
(ARCB) and Saia are also big LTL carriers.
"Full truckloads are geared more to retail than manufacturing
(60%-40% split)," Salmon said. "LTL is more geared to
manufacturing than retail (60-40), with equipment and parts a big
driver of overall volumes."
Fuel costs have been stable for the last year and a half, says
analyst Brad Delco of Stephens Inc.
To save on long-haul fuel costs, shippers have been turning
more to intermodal rail-and-truck combinations over the last
decade, Delco says.
For portions of the trip, freight is carried by rail, which
has lower fuel costs than trucks. Using rail shortens the
distance that the trucks must travel.
The driver shortage isn't as bad for LTL carriers as for
full-truckload companies. Their drivers typically spend less time
on the road and get to spend nights at home.
Things That They Carry
Of all the many things that trucks carry, food is the biggest
piece of the pie. Dry foods comprise 21% of the total for
tractor-trailers and refrigerated foods 8%, FTR says.
Food volumes don't change much from year to year, averaging
1.5% annual volume growth, says Starks.
"It is less cyclical than some other commodities, such as
housing-related crushed stone, lumber, roofing and wallboard," he
Housing and automotive are two of the biggest drivers of
overall truck volume, Salmon says. Both need trucks to carry
Every new home going up creates 10 to 20 truckloads of
freight, according to industry dictum. Housing data has bumped up
and down throughout the winter and spring, with new home starts
slowing. But forecasts expect increases throughout the year.
In the auto market, it's not just about finished cars.
Truckers also haul a large share of the parts and materials, such
as steel, rubber and motors, that go into making them.
Demand in "the automotive sector has been relatively healthy,"
Down The Road
The economy is seen as growing faster this year than last, at
about a 2.5% clip. ATA expects truck freight volumes to gain
steam through 2014, buoyed by an improving housing market and
upticks in manufacturing and energy production. It sees more
robust gains in 2015.
FTR forecasts trucking loads to increase 3.9% this year,
driving a 9.8% jump in revenue. The trend compares with last
year's 4.8% load gain and 3.9% revenue bump.
Stephens expects truckload rates to rise more than 3% this
year. For LTLs, it expects yield, which in that sector is
determined by pricing, weight and fuel, to go up 3% to 3.5%.
Trucking companies "are all very economically sensitive, and
right now the economy feels a little better," said analyst Delco.
"So they're all feeling some strength right now."