Werner Enterprises, Inc., a transportation and logistics company, reported revenues and earnings for the fourth quarter and year ended December 31, 2013.
In a release on January 28, the Company noted that operating income for fourth quarter 2013 of $36.1 million improved sequentially by 11 percent compared to $32.6 million for third quarter 2013 due primarily to a more favorable freight market. Fourth quarter 2013 freight demand (as measured by the daily morning ratio of loads to trucks in the Company's One-Way Truckload network) showed normal seasonal improvement in October and November, with some further demand strengthening during this quarter's compressed retail selling period between Thanksgiving and Christmas compared to the same holiday period a year ago. Freight trends thus far in 2014 have been better than the same period in 2013. Severe weather in December 2013 and early January 2014 created a build up of freight demand but also resulted in higher operating expenses such as maintenance and insurance and lower miles per truck.
Average revenues per total mile, net of fuel surcharge, rose 3.1 percent in fourth quarter 2013 compared to fourth quarter 2012 due partially to higher seasonal capacity surcharges in the One-Way Truckload fleet and higher average revenue per mile in the Specialized Services unit in fourth quarter 2013. During fourth quarter 2013, the Company increased its emphasis on minimizing empty miles and maximizing utilization in its One-Way Truckload fleet. Werner Enterprises believes there are several truckload capacity constraints including an older industry truck fleet, the higher cost of new trucks and trailers, significant regulatory changes, increased trucking company failures and a challenging driver market. The Company continues to work jointly with its customers to secure sustainable transportation solutions across all modes and to offset increased rates through enhanced optimization and transportation solutions whenever possible.
Average monthly miles per truck for the Company declined by 2.2 percent in fourth quarter 2013 compared to fourth quarter 2012 and increased by 2.6 percent compared to third quarter 2013. The Federal Motor Carrier Safety Administration ("FMCSA") revised driver hours of service ("HOS") rules became effective July 1, 2013. Among the changes were more restrictive requirements covering driver use of the 34-hour restart rule and a new mandatory 30-minute rest period after 8 hours on duty. As expected, the Company believes that these hours of service changes negatively impacted miles per truck by two to three percent. The Company continues to work closely with its customers and drivers to minimize the impact of these changes and obtain adequate rate relief. In addition to the HOS changes, truck mix changes (more Specialized Services, less One-Way Truckload) and a 4 percent shorter length of haul in fourth quarter 2013 compared to fourth quarter 2012 also affected truck utilization.
Werner Enterprises continues to diversify its business model with the goal of achieving a balanced portfolio of revenues comprised of One-Way Truckload (which includes the short-haul Regional, medium- to-long-haul Van and Expedited fleets), Specialized Services and Logistics (VAS). In fourth quarter 2013, the Company averaged 7,157 trucks in service in the Truckload segment and 50 intermodal drayage trucks in the VAS segment. Werner Enterprises ended the quarter with 7,050 trucks in the Truckload segment and 49 intermodal drayage trucks in the VAS segment. The Company's Specialized Services unit, primarily Dedicated, ended the quarter with 3,425 trucks (or 49 percent of its total Truckload segment fleet).
Diesel fuel prices were 16 cents per gallon lower in fourth quarter 2013 than in fourth quarter 2012 and were 6 cents per gallon lower than in third quarter 2013. For the first 28 days of January 2014, the average diesel fuel price per gallon was 5 cents lower than the average diesel fuel price per gallon in the same period of 2013 and 15 cents lower than in first quarter 2013. The components of the Company's total fuel cost consist of and are recorded in the Company's income statement as follows: (i) Fuel (fuel expense for company trucks excluding federal and state fuel taxes); (ii) Taxes and Licenses (federal and state fuel taxes); and (iii) Rent and Purchased Transportation (fuel component of its independent contractor costs, including the base cost of fuel and additional fuel surcharge reimbursement for costs exceeding the fuel base).
Capacity in Werner Enterprises' industry remains constrained by economic and safety regulatory factors. Following the 2008 recession, class 8 truck builds have been low, resulting in an industry average truck age that remains historically high at 6.6 years. It is very difficult for many smaller and medium size private carriers to replace their older, lower-value trucks with much higher cost, EPA-compliant new trucks, which significantly reduces the risk of trucks being added to the market. Werner Enterprises reduced the average age of its much younger truck fleet by half a year during 2011 and 2012, with net capital expenditures totaling $457 million during that two-year period. The significantly higher cost of new trucks and resulting higher depreciation expense and related diesel exhaust fluid costs is not being recovered through a single year customer rate review cycle. The Company continues to invest in equipment solutions including more aerodynamic truck features, idle reduction systems, tire inflation systems and trailer skirts to improve the mile per gallon efficiency of its fleet. Net capital expenditures in 2013 were $152 million. The Company estimates capital expenditures for the year 2014 to be in the range of $150 to $200 million. The average age of Werner Enterprises' truck fleet as of December 31, 2013, was 2.4 years, and its goal is to maintain its average truck age at approximately this level during 2014.
The driver recruiting and retention market became even more challenging during fourth quarter 2013. Significant factors included a declining number of, and increased competition for, driver training school graduates, a gradually declining national unemployment rate, and increased job competition from the strengthening housing construction and hydraulic fracturing markets.
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