Living on the edge of healthy profit margins

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When speaking to industry groups this year, I’ve been focusing on what I call the “Four Cs” driving motor carrier fortunes these days.
Those four Cs are:
Accountability (okay work with me on that one – it does have two “c”s)
and Cost Control
Over the past few months, I’ve been paying most of my attention to that last C – cost control. And for good reason.
Consider the quarterly financial statistics for Canada’s for-hire carriers earning at least one million in annual revenues:
2nd quarter 2006 Revenues up 5.7%; Expenses up 5.7%
3rd quarter 2007 Revenues up 5.0%; Expenses up 5.5%
4th quarter 2006 Revenues up 2.3%; Expenses up 2.9%
While revenues were healthy right up to the fourth quarter of 2006, expenses were either negating, or worse, reversing any gains made.
Now the results from the first quarter of 2007 are in from Statistics Canada and they show another disturbing trend. While operating expenses were down 4.8% for the first quarter compared to the same period in 2006, operating revenues declined 5.9% for the same period.
On a year-over-year basis, while average operating expenses decreased 5.8% on average operating revenues declined 6.9%.
Most importantly, the drop in revenues is now having an impact on carrier profitability.
The operating ratio for Canada’s for-hire carriers earning at least one million in annual revenues deteriorated to 0.94, according to Statistics Canada records for the first quarter of 2007. Motor carriers, on average, are now almost at the edge of profit levels considered healthy for trucking operators.

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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.

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