Trucking Companies Confront Amazon Threat
January 26 2016 - 3:39PM
Dow Jones News
By Loretta Chao
Trucking executives say they still expect growing business from
Amazon.com Inc., even as the company takes steps to move some of
its own freight.
The Seattle retailer said in December it would roll out
thousands of branded semi-trucks, one of several recent moves by
the company to take more control of its shipping routes. The
announcement sent shudders through the trucking industry, which
ships millions of packages a day between Amazon distribution
centers and the warehouses belonging to home-delivery carriers such
as FedEx Corp. and United Parcel Service Inc.
On Tuesday, two of the largest U.S. trucking companies brushed
off the potential threat from the e-commerce giant saying there was
plenty of freight to go around.
"Amazon's trailer purchases are having little to no impact on
our truckload segment," said Swift Transportation Co., a large
truckload carrier, in a conference call. "We currently operate
several different facilities for Amazon across a variety of our
suite of services and are excited about our potential growth with
this partnership."
Executives at Covenant Transportation Group, which works closely
with Amazon because it specializes in expedited shipments hauled by
driver teams that can stay on the road around the clock, said they
also believe demand from Amazon will continue to grow.
"They're growing so dramatically that it's hard for anybody to
keep up with what they are doing in the marketplace," said Joey
Hogan, Covenant's chief operating officer, on the company's
quarterly earnings call on Tuesday. "They need every truck they can
get their hands on."
David Parker, the company's CEO, said e-commerce is changing
typical routes for Covenant's team drivers. Whereas Covenant's team
drivers traditionally drove long hauls of thousands of miles for
special shipments, they are now ferrying goods between distribution
centers that are 600 to 700 miles apart.
Amazon and others want to reserve trucks on the fly, as the
location of their customers in relation to the goods they purchase
can be unpredictable.
"People are calling at 3 a.m., at 5 a.m., saying they need 5
trucks, 10 trucks or 12 trucks. It's a moving target," Mr. Parker
said. For the peak holiday season, the company has shifted to
charging retailers by the day instead of by the mile because of the
unpredictability. "The model is, 'I need trucks. I don't know where
they're going, I don't know when the load's going to be ready,
[but] I need trucks.'"
Covenant saw a 10.8% increase in freight revenue the fourth
quarter from a year earlier, and freight revenue per tractor
increased 2.9% to $4,423 per week in the fourth quarter from a year
earlier. But the gains were off-set by rising driver pay, an
unusually high depreciation expense due to an unfavorable used
tractor market, and negative fuel hedge positions, the company said
in its earnings report.
Covenant locks in prices for about 25% of its fuel two years
ahead of time, which translated to losses last year as fuel prices
dropped to historic lows and the company's revenue from fuel
surcharges decreased. The carrier recorded $4.5 million in losses
from fuel hedging transactions in the fourth quarter, but said it
expects opportunities to lock in lower prices for 2017 and 2018,
and will continue its hedging strategy.
Covenant closed the quarter with a net income of $13.2 million,
down 2% from a year earlier. Swift's earnings of $0.53 per share
topped analysts' expectations, with the company attributing
relatively strong profits to cost-control efforts. Swift shares
traded up nearly 20% at $16.35 after the company announced plans to
buy back stock. Covenant shares were up 11% at $17.88.
(END) Dow Jones Newswires
January 26, 2016 16:24 ET (21:24 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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