Universal Logistics looks for a strong year in intermodal

Although driver shortages and supply chain upheaval continue to inject uncertainty into the transportation and logistics services sector, a healthy drayage business and steady customer demand will drive strong guidance for 2019, said Universal Logistics (NASDAQ: ULH) CEO Jeff Rogers on an investor call this morning.

The Warren, Michigan-based company, which announced record- breaking fourth quarter earnings yesterday, said it expects operating revenues in 2019 to be in the $1.6 to $1.7 billion range, up from $1.46 billion in 2018, with operating margins between 7 and 9 percent.

“We have a lot of reasons to believe 2019 will be our best ever,” Rogers said.

Transportation equities analysts expressed skepticism about the margin growth prediction – up from around two percent in 2018. But Rogers attributed the projected uptick in part to the company’s recent spate of intermodal acquisitions, and said that congestion in the rail and port segments will continue to fuel growth in the drayage segment of intermodal.

“We feel that space of intermodal is more sustainable,” he said. Universal plans to continue its acquisitions this year, and is looking to expand aggressively in the aerospace vertical.

Rogers and analysts engaged in some back and forth about whether shippers’ desire to get ahead of tariffs were responsible to some degree for the company’s strong fourth quarter performance. “Did that leave a lull in volume, a hangover, as we look to the second quarter of 2019?” one analyst asked.

Universal’s retail customers in California did not “pull forward” because they didn’t have the warehouse space, Rogers said. Although the Chinese New Year may have given volumes a nudge, overall, the company’s customer base was not impacted by the trade war.

“The economy is strong, and I expect 2019 to be a good year with normal seasonality,” Roger said.“Spot rates are softening, but contract is holding steady. There is still plenty of freight and capacity is still tight.”

A couple of Universal’s units did not meet return expectations for the fourth quarter of 2018; namely, the dedicated services division, which suffered due to contract commitments that were below market. The company expects to meet dedicated goals in 2019 as those contracts are dealt with, Rogers said.

A bigger problem is that Universal continues to lose over-the-road drivers – and that’s something higher wages won’t fix, said Rogers in response to an analyst query. “If you think about what rates did in 2018, you saw a 20 percent to 30 percent increase in revenue per mile… So I don’t think money solves that. There has to be more of a regional-based approach, an opportunity for those guys to spend more time at home instead of in the back of a sleeper berth.”

Drivers on irregular routes are also defecting to small fleets that may not force the use of electronic logging devices, Rogers said.

Universal aims to optimize scheduling and deploy new technology in 2019 “so the driver experience will be better than ever.”

Analysts pointed to big moves in the e-commerce space, with retailers like Amazon and Walmart now taking an aggressive stance in transportation and logistics. The shift is being felt in the logistics space. XPO executives told investors last week that it missed quarterly revenue forecasts due in part to a pullback from a large customer many believe is Amazon.

“Is this something that we should be on the lookout with you guys?” an analyst asked.

Rogers’ answer was equivocal. “It’s not like we are going to lose the business,” he said. “It’s going to shift to a different arrangement.” Universal, he said, is “having great conversations with Walmart as they change the supply chain.”

Driver issues also come down to supply chain shifts, he said. “At the end of the day it’s really a shift in business models. That is what we’re wrestling with. We are having continual strategic conversation about how supply chains are changing and how we can meet those needs.”