Morningstar | Tight Truckload Capacity a Strong Pricing Tailwind for Werner Enterprises
Werner Enterprises ranks among the top five full-truckload carriers in the United States by revenue. Truckload carriers move full trailer loads for individual customers from origin to destination. This differs from less-than-truckload shipping, in which carriers consolidate smaller loads from multiple customers. Werner is a well-run carrier, and although its profitability trails that of a few of the top operators like Knight-Swift's legacy Knight division and Heartland Express, we expect it will maintain its solid margin profile over the long run thanks to a steadfast focus on freight selection, increased equipment investment, and disciplined fleet management.Werner looks to stand out in the fragmented $300 billion-plus full-truckload industry by offering a full suite of truckload shipping options, including regional and long-haul dry van, refrigerated, expedited, and dedicated fleet services. It also operates an asset-light highway brokerage unit that focuses on small to midsize shippers with significant supply-chain needs. We think asset-light transportation services have been of particular interest to the firm as a way to reduce capital intensity. Truckload industry supply tightened materially by late 2017 and capacity will likely remain constrained throughout 2018 due to the driver shortage and the government's new logging device mandate (which is tempering productivity for a large swath of the small-carrier base). This should keep core-pricing conditions quite strong for top-shelf truckload carriers. Compared with many of its full-truckload peers, Werner is less exposed to highly cyclical end markets such as building materials and automotive parts. Instead, it focuses on more consistent nondurable retail and consumer goods and grocery products, which constitute more than 70% of sales. Werner also allots about half of its tractor fleet to dedicated-contract operations, which offer longer-term services for shippers. Dedicated business tends to be more stable and less vulnerable to volatile diesel prices because shippers pay a fuel surcharge for all miles driven (compared with traditional dry van, in which customers pay fuel surcharges only for loaded miles).Werner Enterprises is a transportation and logistics company engaged primarily in transporting truckload shipments of general commodities in both interstate and intrastate commerce. The company has two reportable segments: Truckload Transportation Services, which includes the medium-to-long-haul van fleet that transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van trailers, the expedited fleet that provides truckload services, and the regional short-haul fleet that provides truckload van service across the U.S; and Werner Logistics, which is a non-asset-based transportation and logistics provider.
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