Clouds from the perfect storm of 2001 hung on for refrigerated truckload carriers through 2002. Of the factors that battered carriers in 2001 — reduced freight volume, rising insurance rates, and lower used truck prices — only the used truck market improved to any great extent. Gross revenue data for 2002 shows a marginal increase for 40 carriers responding to information requests from Refrigerated Transporter. Viewed as a group, these carriers report higher revenue than they reported for 2001. In fact, the rate of growth for these 40 carriers is almost one full percentage point higher at 2.4% for 2002 than the 1.5% growth rate of the 51 carriers that responded to this survey with 2001 data for the September 2002 issue.

Profit margins continue a trend downward with the average operating ratio rising to 96.4 for these 40 carriers from an average of 94.6 for the carriers responding to the Gross Revenue survey in 2002. Many of the larger carriers show higher operating ratios for 2002. One large carrier that had been a pioneer of the refrigerated business simply closed its doors and liquidated it assets early in 2003.

A number of carriers have sought bankruptcy protection in the past two years with one reorganizing into a new company with a new name and at least two others selling their assets to other carriers. Others have experienced marginal financial results and consequently have simply declined to release data. The Gross Revenue Report on 2002 data contains 40 carriers — 11 fewer than the companies that provided data for the 2002 report on 2001 financial results. As the business climate has continued its weakened state, privately held carriers have been more and more protective of their financial data. Those in bankruptcy are prohibited by their debtor-in possession financing from discussing their financial position outside the courtroom.

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. In addition, a number of large carriers operate fleets dedicated to serving Wal-Mart grocery distribution centers. Combined, these fleets may be as large as 5,000 refrigerated trailers, but financial results are not available.

With fewer carriers providing data, determining results for the whole industry becomes slightly complicated. In raw terms, the 40 carriers responding for this report show less revenue for 2002 than the 51 carriers listed in 2002 showed for their 2001 revenue. The total for 2001 revenue from those 51 carriers was $4,080,665,105. The 40 carriers providing data on 2002 revenue report a total of $3,598,394,013, which is 2.4% higher than the revenue reported by these same 40 carriers for revenue in 2001. Ostensibly, the shortfall from 2001 revenue reported in September 2002 is roughly $500 million. Almost exactly that amount can be accounted for by the failure of two large carriers and by estimates for three carriers that did not report 2002 revenue this year.

In fact, the reluctance to report revenues leads to some questions about the total size of the refrigerated freight market. We actually know that it approaches $5 billion. We can defend that figure. However, 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.

Dedicated fleets add to the confusion over revenue. Delivery costs from wholesale distribution centers to stores and food-service outlets is accepted to be one percent of retail sales. Based on grocery industry figures, downstream distribution costs 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, freight demand has remained soft for the past three years. Allowing for variations in the number of carriers responding to our request for financial data, we still see an increase of almost $1 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 — only 1.5% to 2% a year.

The revenue increase reported by these 40 carriers amounts to slightly more than $80 million, a growth rate of 2.4%, almost one full percentage point higher than the 1.5% rate of growth reported in September 2002. Growth rates had been much stronger in the boom years of the late 1990s, peaking at 15.5% growth as shown in the 1997 Gross Revenue Report. Through the 1990s, 7% to 8% had been a fairly normal rate of increase.

Carriers say that they do not anticipate growth rates as high as 15% to be repeated any time soon. They do, however, hold out hope for increased rates that will allow for wider profit margins. Industry capacity is contracting. For instance, the Frozen Food Express Industries quarterly report for the second quarter 2003 notes that for the first time in years lost capacity is not being replaced rapidly by new carriers.

The percentage of carriers who respond to our Gross Revenue Report information request and who report revenue increases remains higher than might be expected. For this report, 65% of carriers report higher revenue. This is up from 63% of responding carriers reporting an increase on revenue for the year 2001.

Operating ratios are available for 36 of these 40 carriers. The average 2002 operation ratio for carriers in this report is 96.4, an increase of two points from the average of 94.6 reported in September 2002 on revenue from 2001. Twelve of these 40 carriers reported a better operating ratio on 2002 revenue than on revenue from 2001. However, operating ratios remain a cause for concern with only three carriers reporting an operating ratio below 90 and 10 reporting results below 95. One bright note is that only one carrier reported an operating ratio higher than 100. With higher operating ratios, even small increases can indicate trouble as outside financial pressures make fleet replacement and debt service a potentially critical problem. Profit margins have been narrowing steadily since 1995 when the average operating ratio was 90.7.

The large carriers responding to this survey all report slow growth — less than 5% — while 26 of the total of 40 reported some increase. Still, the first three carriers on the list account for $1.34 billion. This is so, notwithstanding the fact, that the top-ranked carrier grew only 4.1%, and the second two carriers on the list report declining revenue for 2002 compared to 2001. The second-ranked carrier's revenue decreased 1.6%, and the third place carrier decreased slightly more than 7%.

The total climbs past $2 billion by the sixth carrier on the list. Below the top few carriers on the list, the report shows an almost even decline from top to bottom with very few big drops. However, at the top, three carriers are separated by gaps of almost $100 million. In each case, these carriers report revenue in excess of $130 million up to more than half a billion.

However, the report is still extremely top-heavy. The first six carriers account for almost two-thirds of the total. Although refrigerated carriers have grown substantially [only 16 years ago, the top ranked carrier in the Gross Revenue Report was shown with $83.2 million in revenue for 1987], they all pale in comparison to dry van carriers. It takes the total of the top eight refrigerated carriers to equal the revenue of Schneider National, the largest dry van truckload carrier. In addition, Schneider along with Swift are dry van carriers with large dedicated refrigerated operations for Wal-Mart.

We have fleet data for all carriers in this report. These carriers operate a combined fleet of 22,517 tractors and 32,296 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 1.4:1, roughly the same as it has been for the past eight years. The number of trailers compared to tractors edged up slightly through the 1990s, perhaps as larger carriers worked to institute more drop-and-hook operations in an effort to reduce waiting time for drivers. These efforts will gain urgency with the introduction of the new federal hours of service regulations. Actual trailer fleet size ranges from 4,330 at Prime Inc to 16 at R J Express. In the total tractors category, Prime runs 2,809 tractors to only 11 for R J Express.

This report shows an average annual revenue per trailer at $120,922 in 2002, down from $126,743 in 2001 and $126,270 in 2000, but still above the mark of $117,846 posted for 1999 revenue. Although down slightly, the revenue per trailer seems to be in an upward cycle starting at $94,222 per trailer per year in 1994 and rising steady to $107,803 in 1998. In an eight-year span, revenue per trailer has dropped only twice, down roughly $6,000 per year for 2002 and down $7,000 to $93,969 in 1996. These results indicate success at reaching the higher productivity goals truckload carriers have been seeking for years.

The productivity trend is reinforced by a relatively high annual revenue per tractor average of $158,872 for 2002. While down marginally from the $163,424 average for 2001 and the $160,914 average for 2000, this benchmark is still higher than the $147,835 average in 1997, $146,843 in 1998, and $153,914 in 1999.

The top-heavy nature of this report shows when an average of all revenue is taken. A composite of the carriers responding for this report would have an average 2002 annual revenue of $89,959,850, much higher than the average of $80,013,041 reported by 51 carriers on revenue from 2001 in the September 2002 issue.

Curiously, the soft freight market 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.

Three carriers report an operating ratio of 90 or below for 2002 compared to two who met that standard for 2001 revenues. Three were below 90 for 2000, and in previous years six carriers were below 90 in 1999, and nine reached that goal in 1998. The number of carriers with an operating ratio below 95 is 10, down three carriers from the 13 carriers with ratios below 95 on 2001 revenue. The number of carriers with low operating ratios has been shrinking steadily since 1998.

Obviously, more refrigerated carries 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.