The financial sun finally came out over refrigerated trucking in 2004 after two years of stormy weather in 2001 and 2002 and an extended clearing throughout 2003. Positive financial results, which showed distinct improvement in 2003, continued a consistent rising pattern in 2004. Against that sunny background, rising fuel prices contributed to more business failures, cutting motor carrier capacity to levels that have encouraged shippers to raise rates to protect access to adequate service levels. Although tight capacity indicates an uncertain environment, surviving carriers may have reason to anticipate a better future.
Gross revenue data for 2004 shows a notable increase for the 41 carriers responding to information requests from Refrigerated Transporter. Viewed as a group, these carriers reported much higher revenue than they reported for 2003. In fact, the rate of growth at 19.3% is almost twice as high as the 11% increase reported by 32 carriers for 2003 revenue and more than six times as high as the 2.4% growth by 40 carriers responding to this survey with data on 2002 revenue as published in the September 2003 issue. In addition, the number of carriers responding with data has begun to inch up after several years of poor financial results left many carriers reluctant to share their information.
Profit margins for carriers responding to this survey continued to widen slightly in 2004 with the average operating ratio of these 41 carriers falling to 94.2, a drop of more than a full point from the 95.3 average reported by 32 carriers on 2003 revenue for the 2004 Gross Revenue Report. Average operating ratio has dropped two percentage points over the past two years. Five of the six largest carriers responding to the survey — one is new to the list with no historical data available — all show an improvement in operating ratio.
A number of carriers have sought bankruptcy protection in the past three years, many simply ceasing operations. Others have experienced marginal financial results and consequently have simply declined to release data. The Gross Revenue Report on 2004 data contains 41 carriers, nine more than provided data for the 2004 report on 2003 financial results. Although the business climate has improved through 2003 and 2004, many privately held carriers have remained more and more protective of their financial data.
Only two refrigerated carriers remain among the ranks of public stock companies — Frozen Food Express Industries and Marten Transport. Several large, publicly held dry van carriers operate refrigerated divisions, but these companies do not release data from their individual operating divisions. One public dry van carrier, Knight Transportation, established a refrigerated operation in 2003 and purchased a refrigerated truckload carrier in 2004. In addition, a number of large carriers operate fleets dedicated to serving Wal-Mart grocery distribution centers; a new entry to the Gross Revenue Report, Transport Industries Holdings, is one of these. Transport Industries has other dedicated fleet customers as well as Wal-Mart.
New report section
In a new section of the Gross Revenue Report on 2004 financial data, Refrigerated Transporter lists dry van carriers known to operate refrigerated service and provides revenue data for all those carriers. No attempt is made to determine what level of contribution refrigerated operations make to total truckload fleet revenue. At some carriers, such as Swift, the contribution is large, because the company has a large refrigerated subsidiary as well as numerous dedicated refrigerated fleets. At others, such as Werner, the refrigerated fleet is said to be relatively small.
In raw terms, the 41 carriers responding for this report show quite a lot more revenue for 2004 than the 32 carriers listed in 2004 showed for their 2003 revenue. Carriers responding to this current survey report gross revenue of $4,747,249,674 for 2004. In the September 2004 report, 32 carriers reported gross revenue of $3,623,374,533, which was more than the $3,598,394,013 reported by 40 carriers in 2003 for 2002 financial results. The change between 2002 and 2003 results, based on separate surveys for the two years, was less than 1%, but when the revenue increase was calculated using data only from the 2004 survey of revenue in 2003 and 2002, the growth rate increased to 11%.
Receiving additional carrier reports for the 2005 Gross Revenue report lends credence to the view that the truckload refrigerated market approaches $5 billion, a defensible figure. Some analysts suggest that it is much higher — possibly as high as $10 to $12 billion. That estimate is based on the assumption that freight costs account for 3% of total fresh and frozen food sales. However, such an estimate may include some duplication, such as counting the proceeds of third-party logistics providers and the revenue of for-hire carriers without noting that for-hire carriers provide transportation services to logistics providers. In turn, some small fleets are leased to larger for-hire carriers as independent contractors. Revenue for these fleets, in a sense, is a double count of revenue paid to larger carriers that use small fleets as owner-operators.
Accounting for dedicated fleets
Dedicated fleets add to the confusion over revenue. Delivery costs from wholesale distribution centers to stores and foodservice outlets are accepted to be one percent of retail sales. Based on grocery industry figures, downstream distribution cost should be in the range of $9 billion. However, that figure is an expense to a private fleet, but revenue to a dedicated fleet. Perhaps the whole industry needs a better definition of just what constitutes truckload carriage and what for-hire operations really do.
All said, gross revenue has improved remarkably in the past year; although, carriers report that freight demand is slightly lower and that revenue increases are the result of pricing based on tight market capacity. Allowing for variations in the number of carriers responding to our request for financial data, we still see an increase of almost $2 billion in refrigerated carrier revenue since 1995. However, this growth based on the volume of food shipments is rising only at the rate of population growth — 1.5% to 2% a year.
The revenue increase reported by these 41 carriers amounts to more than $918 million, a growth rate of 19.3%, significantly higher than reported in recent years. This growth rate even exceeds growth from the boom years of the late 1990s, when the highest increase was 15.5% in the 1997 Gross Revenue Report. Throughout the 1990s, 7% to 8% was a fairly normal rate of increase. Two successive years with growth rates of 11% and 19% could indicate that boom times are returning, but increasing fuel costs make such a prediction improbable.
Carriers are, however, seeing less resistance to rate increases as industry capacity contracts. Higher rates in a tight financial market, carriers say, are the only way to ensure wider profit margins. For instance, the Frozen Food Express Industries quarterly reports routinely note that for the first time in years lost capacity is not being replaced rapidly by new carriers. Other carriers report that shippers are now willing to pay to reposition equipment so that it is more readily available for outbound loads.
90% report increases
The percentage of carriers that respond to our Gross Revenue Report information request and report revenue increases remains higher than might be expected. For this report, 90% of carriers report higher revenue. This is the same as the percentage reporting an increase between 2002 and 2003 revenues as published in September 2004 and up from 65% of responding carriers reporting a gain in revenue for the year 2002. Obviously, this is the result of receiving reports primarily from carriers in good financial condition that are willing to share data.
Some carriers report rapid rates of growth, especially among the small and middle-size companies such as Classic Carriers growing 63%, Denny Transport increasing 45.6%, and Gemini Traffic Sales showing 43.2% growth. Among the larger carriers, Stevens Transport reports a growth rate of 21.4%, followed by John Christner Trucking at 16.5%, and Marten Transport at 13.5%.
Operating ratios are available for 32 of these 41 carriers. The average operating ratio for carriers in this report is 94.2, an improvement of more than one percentage point from the 95.3 reported in September 2004 on revenue from 2003. Twenty-two of these 41 carriers reported a better operating ratio on 2004 revenue than on revenue from 2003. Of those 22 carriers, two carriers — one usual suspect, Stevens Transport, and one new entry, Rocky Top Trucking — report an operating ratio below 90, and 18 report an operating ratio of 95 or lower. Although one carrier reports an operating ratio of 100, no carrier reports a ratio exceeding 100 on 2004 revenue. Improving operating ratios should make the industry healthier and better able to withstand outside financial pressures, replace aging equipment, and pay debt service. However, profit margins are still narrow compared with the average operating ratio of 90.7 in 1995.
Divergent growth patterns
Ten of the largest carriers responding to this survey show a widely divergent growth pattern, with half of them growing at steady single-digit rates and the other half racing upward at rates ranging from 12% to 21%. Two of the largest carriers are in the single-digit growth group, but their revenue accounts for more than $1 billion. Of the 41 carriers providing data, 39 reported larger revenue in 2004 compared with 2003; one reported a decrease in revenue; and one carrier listed lacks the historical data to provide that information.
This Gross Revenue Report looks especially top-heavy, with the first two carriers on the list generating more than $1 billion and the top four carriers topping a total of $2 billion. Concentration at the top continues with 13 carriers accounting for more than $4 billion of the report's $4.7 billion. This concentration shows the rapid growth for refrigerated transportation as a whole. Individual carriers have grown explosively as well; for instance, as recently as 1987, the largest carrier in the Gross Revenue Report showed sales of just $83.2 million. Only 10 years ago in 1995, the largest carrier in the report at a revenue level of $274 million was only half the size of the largest carrier listed in this report. In the larger world of truckload carriers, refrigerated carriers still lag behind their dry van counterparts in total revenue. It takes the total of the top eight refrigerated carriers to equal the revenue of Schneider National, the largest dry van truckload carrier.
We have fleet data for all carriers in this report. These carriers operate a combined fleet of 31,302 tractors and 41,700 trailers. A small, unknown portion of the trailer fleet is dry vans, and a few of the power units are straight trucks. The trailer-to-tractor ratio is 1.33:1, slightly fewer trailers per tractor than in past years. In the report published in September 2004, the trailer-to-tractor ratio was 1.6:1, slightly above the previous eight years in which it stood at 1.4:1. The number of trailers compared with tractors edged up slightly throughout the 1990s, perhaps as larger carriers worked to institute more drop-and-hook operations in an effort to reduce waiting time for drivers. Recently, however, new technology has made higher tractor utilization possible without increasing the size of the trailer fleet. Most carriers have made a distinct effort to size their fleets precisely to the volume of business they expect and have not expanded appreciably in anticipation of increased traffic. Actual truckload trailer fleet size ranges from 4,417 at Frozen Food Express and its associated companies to five at Rocky Top Trucking. In the total truckload tractors category, C R England runs 2,600 tractors to only five at Rocky Top.
Higher trailer revenue
This report shows an average annual revenue per trailer at $130,959 in 2004, well up from $115,176 in 2003, and also above the $120,922 per trailer reported for 2002, $126,743 in 2001, and $126,270 in 2000. Two alternatives can explain the higher average annual trailer revenue: Trailer fleets have been sized specifically to traffic available, or some reported carrier revenue includes brokerage and logistics revenue not actually attributable to the carrier's own trailer fleet. Average revenue per tractor at $185,122 in 2004 is higher as well, rising almost $20,000 above the previous average of $167,847 reported on revenues from 2003. This benchmark has been on an upward trend since 1999.
The top-heavy nature of this report shows when an average of all revenue is taken. A composite of the 41 carriers responding for this report would have an average 2004 annual revenue of $115,786,577, somewhat higher than the $113,230,454 reported for 2003 revenue in the 2004 Gross Revenue Report and much higher than the average of $89,959,850 reported for 2002 revenue.
Curiously, the soft freight market in the years leading up to 2004 helps explain the rise of average annual revenue. Large carriers have the resources to weather tough times and seem relatively comfortable reporting financial data. This does not mean, however, that some big carriers haven't capsized recently. As the total number of carriers reporting data falls, the number of small carriers falls in relationship to the large carriers. This weights the average toward the top of the list.
Obviously, more refrigerated carriers are in business than those shown in this report. The big ones are easy to find and are usually fairly forthcoming with information. Our circulation list gives us a good tool with which we can locate smaller carriers. However, owners of small carriers are not as likely to provide financial data on their operations as their colleagues at larger companies. As the business climate becomes more competitive, nearly all carriers, with the exception of the publicly owned companies (now only two), become more protective of their revenue information. The information in this report has come directly from the carriers listed.