Industry Description

The trucking industry in the U.S. comprises both local and long-distance freight transportation (SIC 4212, 4213, NAICS 484000).  Long distance trucking makes up approximately 70% of the industry, while local trucking encompasses the remaining 30%.[1]  The industry is also further divided into truckload and less-than-truckload (LTL) services.

In the U.S., truck transportation contributes to about 27% of the total value added of the transportation and warehousing sector annually, followed by 17.6% of air transportation and 8.4% of rail transportation.[2]  In total, the industry hauls over 10 billion tons of goods annually, representing 60% of total volume and 70% of total value of all U.S. commercial freight activity.[3]

The U.S. trucking industry is highly fragmented, with the top 50 largest companies generating less than 30% of the market.[4]  The top 10 U.S. truckload carriers by revenue are:[5]

  1. United Parcel Service Of America (Subsidiary)
  2. Fedex (Subsidiary)
  3. J.B. Hunt Transport Services
  4. YRC Worldwide
  5. Swift Transportation
  6. Hub Group
  7. Schneider National
  8. Landstar System
  9. XPO Logistics
  10. Old Dominion Freight Line

Industry Trends

Trends in the trucking industry are primarily driven by fuel prices, industry infrastructure, and changes in consumer spending and manufacturing.  A few of the most significant trends are:

  1. Trucking industry will continue to experience volatility in the short term but is projected to grow steadily over the longer term.  After years of steady but slow recovery post-recession, demand slid again recently.  However, U.S. domestic economy is showing strong indicators in consumer spending, and American manufacturing is expected to improve. With positive macro influences, trucking industry is projected to grow at an annual rate of 2.1% from 2017 to 2021.[6]
  2. Electric vehicles is expected to play a bigger role in the industry’s future.  With the increasing availability of affordable and high-performance electric vehicles for families and individuals, the technology might further benefit trucking industry.  Environmental regulations will also play a role in the adoption of electric vehicles across the industry.[7] This  development will likely reduce the dependence of trucking industry on oil prices in the future.
  3. Other efficient technologies, such as GPS and electronic logging device (ELD) requirements, will continue to support industry growth and profitability.  Combining shipments and finding the fastest routes by leveraging new technologies will be one of the the keys for trucking companies to gain competitive edge.

Key Performance Metrics

The following are performance metrics that managers in the trucking business use to benchmark their performance against others in the industry:

  1. Tonnage carried annually
  2. Percent full loads
  3. Ton-miles (cargo weight x distance traveled)
  4. Fleet capacity
  5. Average transportation cost per miles/weight
  6. Vehicle turnaround time

Industry Organizations and Publications

Some organizations that publish helpful information about the trucking industry include:

  1. Trucking Industry Mobility & Technology Coalition: www.freightmobility.com, publishes news and information relating to freight transportation issues
  2. American Trucking Association: www.truckline.com, the largest national trucking trade association
  3. America’s Independent Truckers’ Association: www.aitaonline.com, information tailored to small and medium sized trucking fleets

Summary of Valuation Approaches

There are four different types of valuation methods that can be used to value trucking companies, as follows:

  1. Asset-based valuation: This method calculates a business’s equity value as the fair market value of a company’s assets less the fair market value of its liabilities.  This approach is also sometimes referred to as a “cost based approach”; that is, the business’s value is equal to the cost of acquiring its physical assets.
  2. Income approach to value (capitalization of earnings): This method is most applicable to companies that face predictable and constant growth in earnings and have a long history of operations.  The business value under this method is equal to the cash flow projection for one year divided by a capitalization rate (i.e. the appropriate discount rate less the predicted growth rate).
  3. Income approach to value (discounted cash flow): The value of equity utilizing this method is equal to the present value of free cash flows available to equity holders over the life of the business. This method works well for both established companies with low growth rates as well as new companies with higher rates of growth, but requires predicting changes in future cash flows.
  4. Market approach to value: This method utilizes market indications of value based on metrics from guideline publicly traded trucking companies and privately held businesses.  The financial metrics of public companies or those of private transactions can be used to create valuation multiples that are then used to calculate business value.

Benchmark Statistics

The following benchmarking data is based on studies from various truck transportation companies: [8]

 

2015

2014

2013

2012

2011
Gross Profit %

34.7%

32.9%

32.5%

33.3%

34.1%
Operating profit %

4.7%

4.6%

3.6%

4.1%

3.8%
Sales/Fixed assets

7.2

7.7

7.9

8.6

9.8
Current ratio

1.3

1.3

1.3

1.3

1.3

 

As a further point of comparison, the following data is based on studies from various long-distance general freight trucking companies:

 

 

2015

2014

2013

2012

2011
Gross Profit %

33.0%

31.0%

30.2%

30.6

31.1%
Operating profit %

4.7%

4.6%

3.5%

4.2%

3.5%
Sales/Fixed assets

6.4

7.7

7.3

8.9

9.1
Current ratio

1.3

1.3

1.3

1.3

1.2

 

The following data is based on studies from various local general freight trucking companies:

 

 

2015

2014

2013

2012

2011
Operating profit %

6.8%

6.7%

5.9%

6.1%

5.6%
Sales/Fixed assets

6.8

6.8

7.8

7.9

9.2
Current ratio

1.3

1.3

1.2

1.3

1.3

 

Before using this data for specific valuation purposes it should be evaluated for appropriateness.

Availability of Publicly Traded Comparable Companies

Many freight trucking companies are publicly traded on stock exchanges. The availability of financial data for publicly traded trucking companies makes it possible to compare a subject company to industry benchmarks and apply industry multiples.  When valuing a freight trucking business, however, it is important to use benchmarks and multiples based on companies that are similar to the subject company.  Certain publicly traded trucking companies may also derive a signification portion of revenues from other services besides trucking, and may not necessarily be representative of companies that only engage in trucking.

The top five publicly traded trucking companies, ranked by market capitalization, are:[9]

  1. United Parcel Service, Inc. (Subsidiary)
  2. J.B. Hunt
  3. ZTO Express (Cayman) Inc.
  4. Old Dominion Freight Line
  5. Landstar System, Inc.

The trailing price to earnings ratios of these companies range from 26.3 to 30.8.  The trailing price to sales ratios range from 1.2 to 6.8.[10]

Availability of Private Purchase Transactions

In addition to public trucking companies, data regarding privately held companies can also provide a useful benchmark when valuing a trucking business.  Fulcrum reviewed information regarding private company purchases of the trucking industry.  The size and scope of companies that have been bought and sold varies greatly, both in terms of their sales and the purchase price paid for the companies.  From 2012 to 2016, transactions show the following ranges:[11]

  1. Market value of invested capital (MVIC) to net sales range from 0.09 to 2.20, with a median of 0.46;
  2. MVIC to earnings before interest, taxes and depreciation (EBITDA) range from 1.01 to 27.69, with a median of 4.07.

Private transactions identified should be evaluated for relevance, and may not necessarily be representative of the trucking industry as a whole, thus should not be used without further analysis.  As with selecting publicly traded guideline companies, care should be given to select private transactions that share similarities with the subject company.  The financial metrics of a potential guideline transaction should be compared with those of the subject.  Additionally, industry economic conditions also vary over time, which can affect trucking businesses as investment opportunities.  Specific factors that are unique for each company must be considered.

Fulcrum Inquiry performs business appraisals for trucking companies and other businesses.

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[1] California Department of Transportation, Trucking Industry Overview.

[2] Bureau of Economic Analysis, Value Added by Industry.

[3] California Department of Transportation

[4] California Department of Transportation

[5] Journal of Commerce, Top 50 Trucking Companies Prepared by SJ Consulting Group.

[6] Trucks.com, Trucking Industry Faces Weak Freight Demand into 2017.

[7] All Truck Jobs, Trucking Industry Predictions for 2017.

[8] Risk Management Association, Annual eStatement Studies.

[9] Nasdaq

[10] Yahoo Finance

[11] Pratt’s Stats