Cost increases are becoming a worrisome and long-lasting trend
February 21, 2008
February 21, 2008
Just received the latest financial statistics on the nation’s motor carriers, and, frankly, they are worrisome.
The trend towards costs growing faster than revenues, which first appeared back in 2006, continues with a vengeance.
Operating revenues for the nation’s top carriers (the 97 Canadian-based trucking companies earning $25 million or more annually) in the third quarter of 2007 were up 5.8% but their operating expenses increased 6.7%, on a year over year basis.
It’s a pattern that’s becoming well worn. Consider the three quarters previous to the latest data:
Second quarter 2007: Revenues down by 1.3%. But expenses down only by 0.5%.
First quarter 2007: Revenues down 2.0%. But expenses down only 1.1%.
Fourth quarter 2006: Revenues up 2.3%.. But expenses up 2.9%.
And lest you see hope in the revenues being up in the third quarter, it’s important to note that average per-carrier revenues actually decreased 0.7% from the third quarter of 2006 to $26.2 million while average per-carrier expenses remained almost unchanged at $24.7 million.
Of course, this nasty business of costs growing faster than revenues has a direct impact on the bottom line. During the capacity crunch that started in late 2003 and ran into the first quarter of 2006 and allowed carriers to post some impressive rate gains, top carriers’ average operating ratio (operating expenses divided by operating revenue) reached an impressive 0.92. But the latest data shows it has climbed back up to 0.95.
Making five cents on the dollar is the borderline many consider as a healthy profit margin for trucking fleets. And that’s slicing it pretty thin when you consider Class 1 railways make upwards of 20 cents on the dollar.
As I’ve noted in previous blogs, this will bring pressure to bear on equipment purchasing strategies, particularly since , if we use 1993 as the base year, power unit costs were already up almost 18% before the impact of the 2007 engines and trailer costs are up 43%. And I don’t need to tell you what’s happened to fuel costs and driver costs over this time.
With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics. All posts by Lou Smyrlis