Dive Brief:
- Covenant Logistics Group paid $10 million in extra costs in Q4 to shift away from using tractor leases, pursuing an aggressive plan to replace aging equipment, the company said in a Jan. 25 earnings release.
- The carrier reported having to pay unusual costs in the quarter for an excess equipment expense and an early lease abandonment and disposal charge.
- CFO Tripp Grant said on an earnings call Jan. 26 that he expects that the changes will improve operations and maintenance costs, as well as fuel economy. “Although costly in the quarter, we believe this is our best opportunity to start the new year in the most cost-efficient manner possible.”
Dive Insight:
Covenant’s new equipment is helping lower maintenance costs and improve efficiency across its TL units. Leasing locked the carrier in with equipment through 2023 that it had no use for, the company said.
The company also said it expects that the extra costs associated with the shift from the leased equipment will pale in comparison to the benefits of the “improved fuel economy, utilization and maintenance cost” with its new tractors.
With the influx of new equipment, Covenant’s average age of its tractors dropped by three months down to 26 months from Q3 to Q4. The company said that number is “expected to continue to decline throughout 2023 as we normalize the average age of our fleet.” The carrier has been seeking to get the average age of its tractors down to 21 months.
Covenant isn’t the only carrier looking to replace equipment amid pent-up demand. Class 8 tractor orders rose from nearly 283,000 in 2020 to nearly 364,000 in 2021 and 302,000 in 2022, according to FTR Freight & Analytics data.
