Frozen Food Express Industries Inc. said it will walk away from orders if freight rates fall much lower as the trucking sector suffers from excess capacity and a declining overall freight volume.
“There are still too many trucks out there on the highway,” Chief Executive Officer Stoney “Mit” Stubbs said.
The US trucking sector was hard hit in the fourth quarter as the country’s economic growth showed signs of slackening, and companies started complaining about excess capacity. Analysts say the first quarter has remained weak for truckers.
Stubbs said companies’ advance truck purchases to avoid new US emission standards plus an influx of drivers from the construction sector have contributed to the weakness.
“We’re trying to hold the line for rates,” he said. “If it comes down to a degree where we’re not making a profit, then we will not take that business.”
He said Frozen Food Express plans to expand into less asset-intensive operations such as logistics, helping customers manage their shipping strategies, and truck brokerage, which matches customers freight needs with spare capacity in the market.
Frozen Food Express and rival Marten Transport Ltd. are the largest publicly traded US refrigerated trucking companies.
Based in Dallas, the company has a fleet of around 2,000 trucks and on March 6 reported that 2006 revenue fell to $493.4 million from $524.1 million, citing lower freight volumes.
“Volumes are still down at the moment, but the situation has shown some signs of improvement in the last few weeks,” Stubbs said.
“We believe the economy will pick up later this year. I don’t know if volumes will return to 2005 levels.”
New US truck engine emission standards came into place Jan. 1, and most truck companies bought extra 2006 model trucks in advance to avoid paying more for the 2007 engines.
This plus the arrival of construction workers seeking work during the US housing slowdown has hurt prices, Stubbs said.
“We just have to weather this while it lasts, cut overheads and costs to boost profitability, plus expand in new areas to grow volumes,” he said.
Frozen Food Express was trading at $8.14, down five cents in early afternoon trade. The stock is down almost 32percent from a 12-month high of $11.91 on June 23, but up 17percent from its 12-month low of $6.94 on Aug. 10. (Reuters)