Another Mega Carrier CEO Blames “Overcapacity” For Slumping Earnings
Chattanooga, TN – Another mega carrier chief executive officer is expressing concern about “overcapacity” after his company posted its first loss since going public for the second time in June of 2018.
Chattanooga, TN-based U.S. Xpress (USX) posted a net income loss of $1.4 million (-$0.03 per share) in the third quarter.
During the same quarter last year USX posted a net income profit of $16 million.
USX C.E.O. Eric Fuller blamed the disappointing financial results, in part, on continued overcapacity.
“The third quarter was marked by continued industrywide overcapacity of tractors in relation to freight demand,” Fuller said.
While the company saw revenue per mile increases in two of its Truckload segments (dedicated +5.6%, contract OTR +2.6%), it took a beating in its spot market business reporting a decrease of 35% from Q3 of 2018.
“This overcapacity continued to pressure our revenue per mile as well as our ability to optimize equipment utilization, particularly in the non-contracted spot portions of our Over-the-Road Truckload operations,” Fuller explained.
Fuller also expressed concern about rate competition from digital freight brokers.
“We believe the pricing environment was further impacted by unprecedented and unsustainable rate competition from digital freight brokers,” he asserted.
Fuller is not alone in his concerns about overcapacity in the market.
Last month, David Jackson, CEO of mega carrier, Knight-Swift, told CNBC the trucking industry is currently experiencing an “oversupply problem” that is going to continue to bring “near term pressure on freight rates.”
However, Jackson indicated recent employment reductions within the driver pool could soon help improve the operating environment for carriers.
He said that since “capacity is leaving the space,” he expected freight rates to begin improving by the time the second quarter of 2020 rolls around.
“People in the industry and investors are looking for when that inflection point will come. General consensus is, that is happening the second quarter of next year,” he predicted.
Until then, he warned investors that his company’s earnings would reflect the challenging environment.
Likewise, Fuller is betting on an improved rate environment as the company continues to add, not reduce, capacity despite some warnings from investors.
USX grew its tractor count by more than 5% in the third quarter to 6,533 units.
The OTR fleet grew by 7.8% year-over-year in the quarter, with the dedicated fleet growing 2.2%.
Fuller expressed optimism a bounce back is on the horizon.
“While we are clearly not satisfied with our results, we are encouraged by the operational improvements that we are driving across our organization and are optimistic that they will more visibly evidence themselves in our financial results through next year,” he commented.
Photo courtesy of USX