As predicted by most analysts, skies over refrigerated trucking began to clear in 2003 as the storm clouds from the two previous years receded and financial results showed distinct improvement. In the background of this improving picture, truckload carriers continued to suffer business failures that improved the future of survivors as shipper demand finally began to outpace trucking capacity.

Gross revenue data for 2003 shows a distinct increase for the 32 carriers responding to information requests from Refrigerated Transporter. Viewed as a group, these carriers reported much higher revenue than they reported for 2002. In fact, the rate of growth at 11% for these 32 carriers is almost five times the 2.4% growth of the 40 carriers that responded to this survey with 2002 data for the September 2003 issue.

Profit margins seem to have ticked up slightly in 2003 with the average operating ratio for these 32 carriers falling to 95.3 from an average of 96.4 reported by 40 carriers for the Gross Revenue Report on 2002 data in September 2003. However, the average operating ratio remains below the 94.6 reported in 2002 on financial results from 2001. The five largest carriers responding to the survey 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 2003 data contains 32 carriers, eight fewer than provided data for the 2003 report on 2002 financial results. Although the business climate began improving in 2003, many privately held carriers have been 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. 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.

New report section

In a new section of the Gross Revenue Report on 2003 financial data, Refrigerated Transporter lists those dry van carriers known to operate refrigerated service and provides revenue data for the entirety of 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 Knight, the refrigerated fleet is new and relatively small.

With fewer carriers providing data, determining results for the whole industry becomes slightly complicated. In raw terms, the 32 carriers responding for this report show slightly more revenue for 2003 than the 40 carriers listed in 2003 showed for their 2002 revenue. The total for those 40 carriers was $3,598,394,013. The 32 carriers providing data on 2003 revenue report a total of $3,623,774,533, which is less than 1% higher than the revenue reported for 2002 by 40 carriers. However, when the difference in revenue for the years 2003 and 2002 for the 32 reporting carriers is calculated, those carriers show an increase of almost $400 million from 2002 to 2003, a growth rate of 11%.

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.

Accounting for dedicated fleets

Dedicated fleets add to the confusion over revenue. Delivery costs from wholesale distribution centers to stores and foodservice outlets is 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, freight demand has improved remarkably in the past year. 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.

Higher growth rate

The revenue increase reported by these 32 carriers amounts to slightly more than $369 million, a growth rate of 11%, significantly higher than reported in recent years. This growth rate is much more like the stronger growth from the boom years of the late 1990s when increases peaked at 15.5% in the 1997 Gross Revenue Report. Throughout the 1990s, 7% to 8% was a fairly normal rate of increase. It may be too soon, however, to conclude that boom times are returning. The data in this report may indicate a rapidly rising revenue trend, or it may simply be the result of only carriers with positive news choosing to respond to information requests. More significantly positive data in subsequent years will be necessary to project a real boom.

Carriers say that they do not anticipate really high growth rates to be repeated any time soon. They are, however, seeing less resistance to rate increases as industry capacity contracts. Increased 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.

90% report increases

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, 90% of carriers report higher revenue. This is up from 65% of responding carriers reporting an increase on revenue for the year 2002. Obviously, this is the result of receiving reports primarily from carriers in good financial condition who are willing to share data.

Some carriers report especially rapid rates of growth with both Frozen Food Express and Marten Transport showing growth of 15.1% and 14.1% respectively. In addition, the continued success of Central Refrigerated Services as the company rebuilt from the bankruptcy of its predecessor company resulted in a growth rate of 54.9%. In a related note, Kelle Simon, from the family that originally owned Dick Simon Trucking, is back in business and reports growth of 251% in the second year of operation for Kelle's Transport Service, a start-up carrier with $6.7 million in sales.

Operating ratios are available for 24 of these 32 carriers. The average operating ratio for carriers in this report is 95.3, an improvement of more than one percentage point from the 96.4 reported in September 2003 on revenue from 2002. Seventeen of these 32 carriers reported a better operating ratio on 2003 revenue than on revenue from 2002. Of those 17 carriers, three carriers — the usual suspects, Prime, Stevens Transport, and Sorenson Transport — report an operating ratio below 90 and 10 report operating results below 95. One bright note is that only one carrier reported an operating ratio higher than 100. 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 to the average operating ratio of 90.7 in 1995.

Divergent growth patterns

The 10 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 14% to 54%. The two largest carriers are in the single-digit growth group, but their revenue accounts for more than $1 billion. Of the 32 carriers providing data, 29 reported larger revenue in 2003 compared to 2002.

This Gross Revenue Report looks especially top-heavy with the first two carriers on the list generating more than $1 billion and the top five carriers topping a total of $2 billion. Concentration at the top continues with the top 10 carriers accounting for more than $3 billion of the report's $3.6 billion total. 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 only $83.2 million. In the larger world of truckload carriers, refrigerated carriers still lag their dry van counterparts in total revenue. It takes the total of the top 10 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 21,198 tractors and 33,453 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 almost 1.6:1, slightly more trailers per tractor than has been the average for the past eight years in which the ratio was 1.4:1. The number of trailers compared to 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. The effort to build trailer pools took on a new urgency early in 2004 as the new hours of service regulations took effect. Those regulations remain in effect; although, a complete revision has been ordered by a federal appeals court. Actual trailer fleet size ranges from 4,439 at Prime to 53 at NET Trucking. In the total tractors category, C R England runs 2,400 tractors to only 33 at NET.

This report shows an average annual revenue per trailer at $115,204 in 2003, down from $120,922 in 2002, $126,743 in 2001, and $126,270 in 2000. Perhaps the larger trailer pool needed to keep drivers moving has contributed to the slightly lower annual revenue per trailer. This assumption is supported by a higher average revenue per tractor in 2003 at $167,847, up from $158,872 per tractor per year in 2002. Although it has wavered slightly a few times, this benchmark has been on an upward trend since 1999.

The top-heavy nature of this report is apparent when an average of all revenue is taken. A composite of the 32 carriers responding for this report would have an average 2003 annual revenue of $113,230,454, much higher than the average of $89,959,850 reported by 40 carriers on revenue from 2002 and higher still than the average of $80,013,041 reported by 51 carriers on revenue from 2001.

Curiously, the soft freight market in the two previous years 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.