Trucking Firms Should Drive Harder Bargain

by Jana Ritter - Published: 10/14/2013

After all the hype leading up to the "Truckers Ride for the Constitution" threatened to be a mass convoy enough to stop traffic in the capital, the event turned out to be a non-event by Friday afternoon. Police in the Washington, D.C., area estimated that there was a mere 30 big rigs that took part, not the thousands predicted to take the US Government by storm and a stark reality compared to the fictitious, mile-long challenge to authority in the 1978 film "Convoy."

Cass freight

A positive way to look at the low turn-out is to consider that perhaps everyone in the trucking is just too busy to do anything but their job right now. Capacity utilization in the U.S. trucking industry is about 95% these days. This has translated into a healthy, if unspectacular, increase in volume, which is buoying the profitability of large trucking lines. J.B. Hunt JBHT -0.66% Transportation Services Inc. reports third-quarter earnings Monday, and analysts predict an increase in earnings per share to 78 cents versus 65 cents a year earlier. The bottom line is that revenue rising 11.5%.

But truckers could be doing even better. For now, customers are able to find the trucks they need and negotiate good prices, says Rosalyn Wilson, a senior analyst covering the logistics industry for Delcan Corp. "It's amazing to me that truck rates haven't risen more," she says.

Perhaps they soon will, because they are looking to position even better in the overall picture. The Cass Freight Index, which tracks U.S. freight-shipping activity, points to a strengthening business environment. Expenditures on shipping were up 5.2% in September from a year earlier, and volumes rose 0.1%. The modest volume increase was the first increase during the peak shipping season since the recession.

A particular bright spot may be intermodal—from which J.B. Hunt gets about three-quarters of its operating income. The intermodal business involves container units that are shifted between different forms of transport such as ships, trains and trucks. In the second quarter, J.B. Hunt's operating income from intermodal services rose 19% and there are signs the segment was strong in the third quarter, too. The Association of American Railroads reported that intermodal traffic for the week through Oct. 5 was up 6.2% year on year, the 14th consecutive weekly climb. Year-to-date volumes are up by 3.7%.

Unless the government shutdown halted the trend, demand for trucking will have to spur more supply or higher prices soon—likely both. It is a good situation for trucking firms, so now its time to start driving up prices for their drivers.