While the economy continues to grow, it appears to be doing so at a slower rate, and freight yields are coming under increasing pressure, HDT’s Contributing Economic Analyst Jeff Kauffman.
Graphic: HDT
Publicly traded trucking and transportation companies delivered mixed third-quarter earnings, with somewhat subdued fourth-quarter outlooks attributable to pre-shipping of peak season inventories and a modestly weakening consumer.
Overall, 2022 earnings per share outlooks have been lowered by about 2.7%. So, while the economy continues to grow, it appears to be doing so at a slower rate, and freight yields are coming under increasing pressure.
While volumes overall were in-line to slightly lower than expected, revenue yields slowed, resulting in about 16% revenue growth across trucking businesses.
Operating costs rose by about 18%, resulting in lower overall operating margins for truckers.
- Labor costs rose by about 21% on average.
- Fuel costs were about 77% higher for truckload carriers and 46% higher for LTL companies.
- Purchased transportation costs slowed to an average 7% increase on lower spot rates.
The brokerage business saw the most dramatic slowdown in revenue growth last quarter, thanks to lower spot market rates.
Source: Company Reports, Tahoe Ventures, LLC
Earning Results by Truck Segment
Over-the-Road Truckload Carriers
OTR truckload carriers were the weakest of the truck sectors on a year-over-year basis, registering an average operating ratio deterioration in the third quarter of 225 basis points to 88.5%.
This was accomplished on 11.6% overall revenue growth — a function of 6.3% more trucks, a 16.4% improvement in fully loaded revenues per mile, and a 3.8% decline in miles per truck. This compares to an average revenue per mile growth of 27.6% last quarter. Labor costs were 20.6% higher, but this expense is leveling off as drivers are becoming easier to find.
Less-than-Truckload
LTL carriers overall reported healthier results, with 140 basis points of margin improvement and an average operating ratio of 83.7% on 15.4% average revenue growth. That’s stronger than OTR truckload.
The breakdown showed some economic deterioration as shipments were 2.5% slower and weight per shipment declined by 1.2%, implying about 3.7% lower tonnage. Yield improvement of 17.5% outgrew labor cost inflation of 7.2%. While fuel costs were 46.2% higher, purchased transportation expenses here were 2.2% lower than last year.
Dedicated Truckload
Dedicated fleet operations saw the best margin improvement of all trucking groups in the third quarter at 200 basis points, or a 91.2% operating ratio, as yield increases are catching up with inflation.
Revenues grew 23.3% on 7.5% average fleet growth, a 20.9% improvement in yields. Average miles/vehicle was also lower, down 2.6%.
Truck Brokerage
The brokerage business saw the most dramatic slowdown in revenue growth, thanks to lower spot market rates. Revenues grew just 3.9% on 3% average volume growth and negative revenue yields. In our view, there is also a trade-down occurring out of brokerage markets back to contract truckload. This resulting in a 35 basis point improvement in operating ratio to 94.8%.
This commentary was published in the November/December issue of Heavy Duty Trucking.
