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Big Trucking’s secret trick to impress Wall Street — and slam mom-and-pop fleets

The price of a used truck has doubled in the last year

If you ever had a spare 18-wheeler you didn’t want anymore, now would be the time to sell. A 3-year-old used truck is selling for more than $141,000, according to ACT Research, more than double its price from this time last year. 

Trucks are getting expensive. (SONAR)

Unfortunately, you probably do not have any big rigs sitting around. That’s one of the many things that differentiates you and me from some of the largest public trucking companies in the U.S. 

America’s biggest trucking companies have lots of used tractors and trailers. Some of those companies quietly made tens of millions of dollars in 2021 and the first three months of this year by selling old trucks in their fleets.

“Gain on sale/disposal from property or equipment” is a sleepy, oft-ignored line of any company’s quarterly or annual financial statement. As my colleague Todd Maiden wrote last year, even trucking insiders don’t pay much attention to it in normal cycles. 

But now, trucking companies have been using their outsized used equipment sales wins to offset other headwinds in the industry: increasing wages, hefty insurance premiums and, as of this year, a record upswing in diesel. 

The strategy has always lingered for companies with lots of trucks sitting around, but it’s intensified as equipment prices hit record highs — and as many of their own drivers are leaving Big Trucking to open their own trucking companies. 

The hot new side hustle for giant trucking companies

There are about 275,000 trucking companies in the U.S., according to the Federal Motor Carrier Safety Administration, but a whopping 86% of them are teeny-tiny — with six or fewer trucks. Just 120 companies have 1,000 or more trucks.

Mom-and-pop fleets have been booming in count since the pandemic. Since early 2021, at least 10,000 new trucking companies have been created each month. Many of those were small trucking companies; the total number of fleets with six or fewer trucks increased by 12% this past year, according to data from the FMCSA. 

New truckers are flooding the market. (SONAR)

These mom-and-pop truckers have grown more quickly than Big Trucking. The total number of tractors at small truckers, those with six or fewer trucks, has increased by 7.7% over the past year. At big trucking companies, with fleets of 1,000 or greater, they’ve only grown their tractor pools by 1.2%. 

Mom-and-pop fleets are growing faster than the big guys. (SONAR)

But where on earth could these small trucking companies have located these tractors and trailers? Supply chain crunchiness and parts shortages galore have slammed the availability of new trucks. 

These new trucking companies largely bought or leased used trucks. As my colleague Alan Adler wrote late last year in an article titled “Record-setting used truck prices no deterrent to spot rate-chasing buyers” (emphasis mine):

The higher prices are not deterring would-be buyers chasing those higher spot rates, Steve Tam, a vice president at ACT Research, told FreightWaves.

“There are funding sources lined up to loan money to buyers, even at the record high prices we are seeing,” he said. “Lenders are definitely asking for larger down payments and higher monthly payments, but with record high freight rates, borrowers can pay more and still make better money.”

So even as a shortage of drivers impacts certain trucking segments, the rise in drivers quitting for-hire firms to strike out on their own is growing.

“With no data, I would have to say that the overwhelming majority of used truck sales this year have been to owner-operators and small fleets, many of whom are new entrants seduced by the profit motive,” Tam said.

Several industry insiders shared with me that large trucking companies were able to find the bright side of the “labor shortage.” They had too many trucks and not enough people, so they sold off old trucks to these new upstart companies.

Big Trucking often looks at the little guy as a competitor. In conditions like 2021, small truckers were able to take advantage of absurdly high spot rate prices. Large trucking companies usually play in the contract world, though. They can’t suddenly stiff their long-term clients with massive rate jumps when the trucking market is red hot. And, in return, their customers don’t demand bargain-basement rates when trucking isn’t so frothy anymore.

Currently, we’re watching those spot rates crash. That raises questions on whether these new trucking companies can sustain their lease payments on these ultra-pricey trucks. 

Spot rates for dry van soared last year. Now, they’re crashing — and it’s not clear how small truckers will whether the downturn. (SONAR)

Executives at Phoenix-based Knight-Swift, the No. 3 largest U.S. trucker, acknowledged some of that dynamic in an April 20 call to investors. 

“Talking about the used equipment market, those that have ventured in to grow their truck count from a small carrier perspective, their cost structure is very different to where it has ever been,” said Adam Miller, CFO and president of Swift. “And so they can only afford to drop rates to a certain level before they exit our space, because they’re buying equipment that is probably three to four times what they would have purchased in the previous cycle. So that’s one thing to watch really closely.”

“We’re not supplying or enabling small carriers to affordably come in and add capacity,” said David Jackson, CEO and president of Knight. “And the limited number of used trucks we are selling, in some cases, we’re selling these for as much or close to what we paid for them brand new before we put 450,000 or 500,000 miles on the trucks.”

Knight-Swift sold nearly $35 million of used equipment the first three months of 2022 alone, up from $10.5 million over the same period last year. 

The real Wolf of Wall Street is a used truck 

The profits from selling off used equipment have been a boon in impressing analysts and investors. Earlier this year, Heartland Express, based in Dubuque, Iowa, announced record earnings per share for 2021. In the fourth quarter of that year, Heartland managed to slash its operating ratio — a key metric used by Wall Street to assess how well a company is balancing expenses and revenues — by 410 basis points from the year before. 

Hip hip hooray, 410 basis points!

But many of those basis points didn’t come from improved efficiency or performance. Rather, a whopping 300 basis points came from Heartland selling $10 million of used equipment in the fourth quarter. (Read more about Heartland’s earnings here.)

In 2021, Heartland sold $37.4 million of equipment, which accounted for 35% of its operating profit. 

The Iowan trucker is hardly alone. Knight-Swift sold a whopping $74.8 million of used equipment and property last year. That’s a big uptick from previous years. 

One of America’s biggest fleets is selling off more and more used trucks. (Company filings)

Green Bay, Wisconsin-based Schneider drummed up $63.9 million from dumping used equipment and property in 2021, compared to losing $6.2 million in 2020 from equipment and property sales and earning $3.3 million in 2019. 

Elsewhere in the Midwest, Omaha, Nebraska-based Werner said it sold fewer tractors and trailers in 2021 than the year prior, but generated $61.5 million in 2021 versus $11.3 million in 2020. The upticks keep coming: Werner made twice as much money selling used equipment in the first quarter of 2022 than the year prior. 

It’s all hardly unique to trucking. Companies often sell off real estate or equipment to smooth out bumpy earnings. Amid record-high truck prices and unprecedented interest in opening one’s own trucking company, Big Trucking is in a particularly good spot to benefit from the tactic. 

If you work in the trucking industry and want to share your experience, email me at rpremack@freightwaves.com. And don’t forget to subscribe to MODES, your weekly newsletter on the trucking industry. 

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Schneider (No. 7) and Heartland Express (No. 35).

Rachel Premack

Rachel Premack is the editorial director at FreightWaves. She writes the newsletter MODES. Her reporting on the logistics industry has been featured in the New York Times, the Wall Street Journal, Bloomberg, Vox, and additional digital and print media. She's also spoken about her work on ABC News, NBC News, NPR, and other major outlets. If you’d like to get in touch with Rachel, please email her at rpremack@freightwaves.com or rpremack@protonmail.com.