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November 11 2019

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Spotlight 6 The Journal of Commerce | November 11 2019 Truckload carrier revenue stalls A slowdown in the US economy, especially the industrial sector, put the brakes on revenue growth at the largest publicly owned truckload carriers in the third quarter, dampening expectations for a stronger fourth-quarter finish. Operators blamed "an oversupply of truckload capacity" for greater- than-expected pressure on earnings. "We continue to expect a seasonal improvement in demand during the fourth quarter of 2019 — however, less robust than originally anticipated," Knight-Swi Transportation Holdings — the parent company of Swi Transportation, the largest US truckload carrier — said in a statement. The rationalization of truckload capacity "has accelerated," the company said. However, that won't bring much relief until "the second half of 2020," according to the Phoenix, Arizona-based company. In the third quarter, Knight-Swi's total revenue dropped 10.8 percent year over year to $1.2 billion, while trucking revenue, excluding fuel surcharges and transactions involving Knight-Swi subsidiaries, fell 6.4 percent to $876.4 million. "We also experienced increased competition in the intermodal market, which led to a 10.3 percent reduction in volume and 6.8 percent less revenue per load year over year," Knight-Swi said. The gap between truckload spot rates and intermodal spot rates has widened since May, as truckload spot rates rose and intermodal rates plateaued. Knight-Swi's net profit fell 30 percent to $74.6 million. Trucking operating income declined 22 percent to $109.4 million, giving the segment an operating ratio of 88.9, up from 86.9 percent a year ago. The trucking segment's adjusted operating ratio rose from 84.9 percent in the year-ago quarter to 87.5 percent in the third quarter. Few trucking businesses have escaped the grind of slower US economic growth. The US real GDP expansion rate slowed from 3.1 percent in the first quarter to 1.9 percent in the third quarter, according to an initial estimate from the Commerce Department. Lagging industrial output, an underlying indicator for truck freight volumes, is one reason for the deceleration. "Soer demand, driven by slowing production in the U.S. manufacturing sector, and more readily available capacity drove Landstar's truck rates and volumes below prior year levels in the 2019 third quarter," Landstar president and CEO Jim Gattoni said. The fourth-largest US truckload operator's revenue was down 16 percent year over year to $1 billion in the third quarter, mostly due to a 5 percent decrease in truck loadings and a 13 percent decrease in revenue per load. Truck transportation revenue was down 17 percent to $932.2 million. Landstar's intermodal rail revenue dropped 16 percent to $29 million. The 5 percent decrease in truckload volumes was "a larger decrease than the low single-digit decrease anticipated," Gattoni said. He didn't see much room for improvement in the fourth quarter. "Through the first few weeks of October, the number of loads hauled via truck was below the corresponding period of 2018 in a high single-digit percentage range," he said. No buildout to cheaper rents The new supply of United States industrial real estate scheduled for delivery in the coming months is projected to exceed demand by about 70 million square feet, the first time in nine years that new supply will exceed demand. But this will not undermine rent growth and absorption rates in key distribution markets, according to commercial real estate services firm Cushman & Wakefield. That's because 44 percent of the 10 million square feet of industrial space under construction throughout the country is concentrated in seven growing markets: Dallas-Fort Worth, Southern California's Inland Empire, Pennsylvania's I-81 and I-78 corridors, Chicago, Houston, Atlanta, and Indianapolis, the company said in its Marketbeat–US Industrial Q 3 2019 report. "Considering these markets also account for more than 50 percent of net absorption in 2019, new supply remains largely concentrated in markets where demand has been consistently strong," the report stated. The key Executive Editor, The Journal of Commerce and JOC Events: Chris Brooks 609 649 2181, Executive Editor, The Journal of Commerce and Mark Szakonyi 202 872 1234, Managing Editor: Benjamin Meyer 916 716 6272, Associate Managing Editor: Kevin Saville, 212 488 4282, Senior Editors: William B. 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