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Covenant Transport (CVTI) |
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WIKI ANALYSIS
Covenant Transportation Group, Inc. is a carrier for transportation companies, such as freight forwarders, less-than-truckload carriers, and third-party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers, such as manufacturers, retailers, and food and beverage shippers.[1] The company also generates revenue through a subsidiary that provides freight brokerage services. The company operates in two segments: Asset-Based Truckload Services and its Brokerage Services.[1] Revenue has gone up in recent years due to increasing fuel costs. Although fuel costs increase expenses, Covenant Transport has the ability to charge its customers fuel surcharges that typically exceed the additional fuel costs and provide a net positive benefit.
Business Growth
Revenue increased to $649.7 million for 2010, a 10.4% increase from $588.7 million for 2009.[2] Higher fuel prices resulted in fuel surcharge revenues of $103.4 million during 2010, compared with $68.2 million for 2009.[2] Overall demand due to the recovery from the 2008-2009 recession was the primary contributor to the overall increase in revenue and net income.
Trends and Forces
Costs Are Affected by Oil Prices
Since Marten Transport s a shipping company, gas prices are one of the greatest contributors to cost, especially when fuel prices are not as stable. Even the smallest increase in the price of diesel fuel has a large impact on the trucking industry; the American Trucking Association estimates that expenses on fuel increase by $391 million annually if fuel increases by just one cent.[3] It's clear that unpredictable fluctuations in fuel prices can cause costs - and therefore earnings - to be volatile.
Market Consolidation
Due to the financial crisis, the truckload sector is moving towards consolidation, meaning a few larger companies will dominate the sector, squeezing out smaller firms. It's likely that this will continue because some smaller firms are forced out by competition by larger firms or combine with others. If this continues to happen, this trend will be advantageous to Covenant Transport, as it is a large provider and has the opportunity to capture more market share and customers as smaller competitors continue exit.
Competition
- J.B. Hunt Transport Services (JBHT)
- Landstar System (LSTR)
- Arkansas Best (ABFS)
- Old Dominion Freight Line (ODFL)
- Universal Truckload Services (UACL)
- Hub Group (HUBG)
- Marten Transport (MRTN)
In the shipping industry, prices charged for shipping services are influenced and determined by fuel rates, equipment availability - how many trucks are on hand for services, the overall economic climate, as well as competitors' prices. There are about a quarter of a million trucks that have excess capacity to deliver freight, which means increased competition and smaller profit margins.
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