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Retailers and manufacturers rushed to lock in low freight rates in the first quarter as overcapacity in the trucking industry dragged on the profits of transportation companies but bolstered profits for middlemen who arrange shipments.

C.H. Robinson Worldwide, Inc. reported Wednesday net profit of $118.9 million for the first quarter, an increase of 11.7% over the first quarter of last year. Diluted earnings per share expanded from 73 cents a share in the first quarter of 2015 to 83 cents a share this year.

The company’s total revenue from arranging transportation and logistics services for companies such as Wal-Mart Stores Inc., Coca-Cola Co. and Dollar General Corp. fell 6.8% to $3.1 billion in the first quarter from the same period a year ago.

In a conference call with analysts, C.H. Robinson executives said the company received twice as many bids for freight contracts in this year’s first quarter as it usually gets at the start of the year, a sign that shipping customers were trying to bring low spot-market rates into their longer-term contracts. Freight rates for these bids were flat or lower compared with last year.

“We…currently continue to see a soft market with a lot of available truckload capacity,” said John Wiehoff, C.H. Robinson’s chief executive. “It’s a normal response that shippers would be a little more aggressive in their bid activity, and so we do see elevated levels from our standpoint across virtually all of our services.”

C.H. Robinson, based in Eden Prairie, Minn., was able to increase profits and expand its margins because as a freight broker it mostly enters into long-term contracts with customers to sell them trucking service at set prices but finds capacity in the shorter-term spot market, where prices fluctuate more quickly.

With about $13.5 billion in gross annual revenue, C.H. Robinson is the largest freight broker in the U.S. and considered a bellwether for the industry.

On Wednesday, DAT Solutions, an Oregon-based transportation data firm, reported that spot-market freight rates fell 21% in March from the same month a year ago for dry vans, the most common type of tractor-trailers used for shipping consumer goods.

Overcapacity has plagued the financial results of trucking companies over the last year, especially those that compete for loads on a daily basis in a highly fractured market, said Michael Scheid, an analyst with SJ Consulting. Trucking fleets have grown at a faster rate than demand for freight shipping in each of the last six quarters, according to Mr. Scheid’s data, as companies brought in new equipment purchased during a buying surge that started in 2014.

“It’s happening across the industry, because a lot of carriers are adding capacity and the volume of demand has not matched that,” he said. “Reducing capacity would help their profits for sure. But I think the carriers think this is a short-term event and they’re looking at the long term.”

Cowen analyst Jason Seidl wrote in a client note that nearly two-thirds of C.H. Robinson’s truckload business with shippers is priced in annual contracts, compared with a decade ago, when most contracts with shippers were shorter-term spot-market contracts.

Many analysts, including Mr. Seidl, believe large trucking companies are waiting out the soft market until 2017, when a federal mandate to use electronic logging devices, which track how many hours drivers are on the road, will take effect. ELDs, which are expensive to install and reduce the number of hours drivers can log, could potentially put hundreds of smaller competitors out of business, reducing capacity and bolstering freight rates.

 


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