Loaded and Rolling: Martin Q1 earnings, ATA truck tonnage drops

Martin Q1 earnings: More miles, less operating income

Earnings season is upon us and the freight recession lingers worse than salmonella-carrying potato salad at a tailgate party. Wisconsin-based truckload carrier Martin Transport reported its Q1 2023 earnings Tuesday. While operating revenue improved 3.7% from $287.3 million in Q1 2022 to $298 million this year, the actual operating income declined from $35.9 million to $29 million. Martin’s truckload segment reported an increase in total miles driven from 35.3 million in Q1 ’22 to 38.2 million in Q1 ’23, while average revenue net of fuel surcharges, per tractor per week, declined 8.16% from $4,977 to $4,571.

For many trucking companies, one key measurement of performance is the operating ratio, a measurement of the percentage of costs related to margin. For example, an OR of 95 means that for every $1 in revenue, only 5 cents was profit.

FreightWaves’ John Kingston wrote: “The bottom-line measurements were a mixed bag in comparison to the first quarter of 2022. The truckload segment’s OR deteriorated to 91.7% from 86.2%, as truckload operating income declined to $10 million from $15.6 million. The OR in dedicated improved to 87.1% from 89%, and operating income in that group rose to $13.7 million from $10.6 million.”

From my personal experience, an OR between 85 and 90 is considered doing well in trucking, a historically low-margin business. But if OR goes up to 95 to 100, there are real concerns about long-term profitability.

ATA Truck Tonnage Index largest drop since 2020

(Source: American Trucking Associations)

The American Trucking Associations on Tuesday released its Truck Tonnage Index with March posting a seasonally adjusted decline of 5.4%, the largest since April 2020, at the start of the pandemic. The index fell from 118 in February to 111.6 in March.

ATA Chief Economist Bob Costello noted in the report: “Falling home construction, decreasing factory output and soft retail sales all hurt contract freight tonnage — which dominates ATA’s tonnage index — during the month. Despite the largest year-over-year drop since October 2020, contract freight remains more robust than the spot market, which continues to see prolonged weakness.”

For carriers, the focus remains on securing as much contracted, committed freight as possible. Part of this reason stems from the wide gulf between contract and spot rates. The FreightWaves spot (linehaul) to contract rate spread currently is at 88 cents-per-mile difference in favor of contracted freight. One challenge for carriers heavily exposed to contracted freight is customer shipping characteristics. Depending on the time of year, the volumes may be front-loaded, leaving carriers scrambling to fill in freight volume gaps later in the year though mini-bids or attempts to secure special project freight. I’ve personally seen instances in which a shipper will commit to 50 loads per week year-round — only to send 65 per week the first half, then 35 in the second half while claiming not enough product to ship. Depending on the shipper, this may be true, or it may be tendering the loads to cheaper carriers further down the routing guide.

Market update: Cass March data shows sagging shipments and rates

(Source: Cass Information Systems, ACT Research)

Freight shipments, costs and rates continue to fall, according to recent data published by Cass Information Systems. The shipments component of the Cass Freight Index fell 1% month over month (m/m) from February but was down 3.8% m/m seasonally adjusted in March. ACT Research’s Tim Denoyer in the report wrote: “Soft real retail sales trends and ongoing destocking remain the primary headwinds to freight volumes, and sharp import declines suggest this type of environment will persist for some time.” The report added that based on normal seasonality, further declines between 1% and 3% year over year (y/y) are expected for the next few months.

The Cass Truckload Linehaul Index, an index that includes both spot and contract freight, saw a decline of 0.6% m/m in March, off the heels of a 0.4% m/m decline in February. The more telling story is the y/y decline. The index fell 9.6% y/y in March after falling 6% y/y in February.
Regarding demand recovery, FreightWaves’ Todd Maiden wrote: “As freight data continues to bobble along the bottom, industry analysts are showing concern that a material recovery in demand may not take shape in the second half, which was the consensus expectation heading into the year. However, shippers provided a bit of optimism around inventories in a recent Morgan Stanley survey.”

FreightWaves SONAR spotlight: Contracted rates continue decline amid stabilizing volumes

Summary: Contracted freight volumes remain steady, suggesting a muted or near nonexistent spring surge typically encountered for dry van lanes. The Contracted Load Accepted Volume Index (CLAV) measures accepted load volumes moving over contracted agreements but removes all rejected tender volumes, which are included in the Outbound Tender Volume Index (OTVI). Compared to last year, contracted volumes fell 8.12% from 14,255.49 points to 13,098.34. Excess truckload capacity exacerbated the decline, causing initial truckload van contract rates to fall 13.1% from $2.90 per mile on April 18, 2022, to $2.52 per mile as of April 4, 2023, the most recent reading as initial van contract rates lag by 14 days.

Falling contract rates against a backdrop of stabilizing volumes are expected to put further pressure on trucking margins. One form of this downward pressure is the addition of more empty miles or deadheading. As carriers compete for fewer loads, their alternative lanes may be farther away or out of network. This causes additional costs in the form of chasing lanes or positioning assets in less favorable markets, forcing carriers to either deadhead to another adjacent market or take further losses on spot market freight. Carriers experiencing these challenges often prioritize finding additional contracted or consistent freight to offset declines, focusing on asset utilization and reducing costs until market conditions change and carriers gain better pricing power.