Yesterday, Covenant Transport Group (NASDAQ: CVTI) released a brief updated Q1 guidance document. Chairman, President, and CEO David Parker wrote, “The truckload freight environment has been favorable during the first quarter to date, leading to operating results that are exceeding our expectations.”
This morning CVTI stock opened at $29.51 but quickly jumped up and settled at ~$32, up 4.96% on the news.
Covenant reported that average freight revenue per tractor for the first two months of 2018 increased 6.3% YOY, because average revenue per total mile increased 9.2% while average miles per tractor decreased 2.6%. Covenant attributed the decrease in average miles per tractor to a slightly lower percentage of its fleet being comprised of team trucks and a slightly lower average seated truck percentage.
Covenant expects to report earnings per share in a range of $0.17-$0.23 for Q1 2018. In Q1 2017, Covenant reported earnings of $0.00 per diluted share.
FreightWaves reported in January on the advantages that team-based fleets have in a regulatory environment with ELD enforcement, particularly in the ‘tweener’ market. ‘Tweener’ refers to a length-of-haul that falls between the number of miles a truck can expect to legally log in a day and the number of miles that would make a profitable two-day haul. Call it 600 to 900 miles. For years, owner-operators running on paper logs took over the ‘tweener’ lanes while big carriers, who had already implemented ELDs, couldn’t compete.
As ELD compliance in small fleets has steadily grown, capacity has left the tweener market: there are fewer and fewer trucks running illegally to cover the tweener lanes. An analyst at DAT confirmed to FreightWaves that tweener lanes are “seeing rapid inflation.” For dry van, Chicago to Atlanta (716 mi) is at $2.85 per mile; Chicago to New York City (807 mi) is at $3.23 per mile; Atlanta to Miami (664 mi) is at $2.66 per mile. The Houston to Midland, Texas lane, while not technically a tweener at 565 miles, is experiencing exceptionally dense flatbed traffic because of fracking activity in the Permian Basin and is running at $2.83 per mile.
Enter team driving: fleets with heavy team exposure are doing exceptionally well, taking over where the non-compliant owner-operators left off. When ELD hard enforcement begins in April, tweener rates should see even more volatile, upward movement.
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