For-hire truck tonnage rose in August and companies were able to charge more to move freight
New York (WSJ) – Trucking companies are convincing shippers to pay more to move freight, but difficulty finding drivers could weigh on earnings.
Analysts expect rising driver pay and storm disruptions to eat into what would otherwise be stronger third-quarter results for truckload carriers. The freight market has picked up as manufacturing activity expands and retailers restock inventories in advance of the holiday season. For-hire truck tonnage jumped 8.2% in August compared with the same time in 2016, according to seasonally adjusted figures from the American Trucking Associations.
Meanwhile, trucking capacity has tightened after a long stretch when too many big-rigs were competing for cargo. Hurricane relief efforts in Texas and Florida have exacerbated the crunch, diverting trucks from other regions and sending prices soaring on the spot market, where companies book transportation on a daily basis.
On Friday J.B. Hunt Transport Services Inc., one of the largest U.S. freight carriers and the first major fleet to report results this quarter said net earnings fell 8.2% in the third quarter. The company cited storm disruptions and accelerating driver wages and recruitment costs, among other factors.
J.B. Hunt shares fell 4% to $104.01 on Friday, and the company’s weaker-than-expected results sent other trucking stocks lower. Schneider National Inc. shares were down 2.1%, while Knight-Swift Transportation Holdings Inc. shares fell 3.1%.
“You’ll hear a lot about the driver shortage, empty trucks, and declining fleet count” during third-quarter earnings, said Stephens Inc. analyst Brad Delco. “The trucks that had drivers in the seats, I’m sure they were as busy as could be.”
Truckers tend to be older on average than workers in other sectors, such as construction. Fewer young people are entering the profession even as older drivers move closer to retirement age, creating added pressure on supply.
During a previous freight boom in 2015, carriers scrambling for drivers pushed through some of their biggest raises in decades, offering sign-on bonuses and free bus tickets to drivers willing to switch employers. This year the turnover rate at large truckload carriers rose to 90% in the second quarter, the highest since the end of 2015, according to ATA.
Trucking capacity is expected to tighten further as a result of rules set to take effect in December that requires drivers to electronically log their hours behind the wheel. Intended as a safety measure to prevent driver fatigue, the mandate could also reduce the time trucks are on the road, slowing delivery times and increasing costs.
So-called spot rates, where trucks are hired on short notice, began to climb this summer and rose sharply after Hurricanes Harvey and Irma. Some shippers are also seeking to lock in capacity for next year, months earlier than the usual contract bidding season. Many fleets expect contract rates to rise by between 5% and 10% in 2018, analysts say.
“We’re potentially back in a favorable freight market like we saw a couple of years ago,” said Allison Landry, a transportation analyst with Credit Suisse Group AG.
But costs are rising too. Trucking companies are competing for drivers in a tight labor market where construction and energy jobs also beckon. In recent months some carriers have raised driver pay or increased spending on recruitment, instead of holding off until after securing broader rate increases with shippers.
“The cost inflation that truckers will face is very real,” Ms. Landry said.
At J.B. Hunt, revenue rose 9% in the third quarter to $1.84 billion, from $1.69 billion a year ago. Earnings per share of 91 cents missed analyst expectations by 5 cents, according to FactSet.
Werner Enterprises Inc., another big trucking company, is scheduled to report third-quarter earnings on Oct. 19.
The largest of the U.S. truckload carriers, Knight-Swift Transportation Holdings Inc., is expected to announce results Nov. 6. It will be the first earnings report since the company was created through the merger of Phoenix-based carriers Swift Transportation Co. and Knight Transportation Inc. earlier this year.