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J.B. Hunt Transport Services has warned its customers they may have to pay as much as 10 percent more in upcoming quarters because transportation costs are being squeezed by truck driver shortages and increased rail activity.

Executives at J.B. Hunt said in a letter to customers last week that while the company has doubled the number of its drivers since 2006 and spent more to recruit drivers, truckers are still leaving the company. J.B. Hunt also is dealing with higher rail freight volumes that are slowing rail delivery times. Both issues are leading to the potential spike in customer costs, according to the company.

In a research note published after the company sent out the letter, analysts at Stephens Inc., a firm that tracks J.B. Hunt, reiterated executives' fears that vacancies in the truck fleet are now chronic problems, with effects that not even the largest trucking companies can avoid.

"We anticipate a need to increase driver pay rates again," J.B. Hunt President and Chief Executive Officer John Roberts and chief commercial officer Shelley Simpson said in the letter.

The letter from J.B. Hunt comes as price and supply outlooks for 2018 are being recalculated after a major hurricane season that left the shipping industry in a delicate position.

The industry has also entered the time of the year when demand for shipped goods is at its highest. With no solution to high driver turnover, analysts say the conditions produce fertile grounds for price increases.

"It's basic economics," Stephens analyst Brad Delco said. "Right now, there is greater demand for limited capacity, and as a result, there is likely going to be elevated pricing. The driver market is as challenged as it's ever been, probably as challenged as these executives have ever seen in their careers."

Rates for on-the-spot freight are higher than last year. The reconstruction and rescue needs stemming from the hurricanes lifted the rates even more. While trucking companies on the spot market can make money hauling disaster freight, companies like J.B. Hunt also have customers it must service based on contracted rates.

In recent years, J.B. Hunt has offered signing bonuses to new drivers and invested heavily in improving its facilities and equipment in hopes of improving retention. In its report, Stephens Inc. said investors should expect "unseated trucks" to pose a problem in J.B. Hunt's upcoming earnings report, scheduled for release Oct. 13.

Roberts and Simpson also pointed to slower train speeds brought on by high rail freight activity and "intermodal facility construction" as reasons why its containers are staying aboard trains longer, leading to higher intermodal prices. The Stephens research note said the prices are about 6 percent higher than last year.

Stephens lowered its projection of J.B. Hunt's third-quarter earnings per share to $0.95, down from $1. Overall, Stephens said in its note that J.B. Hunt is in more of "an ideal position to capitalize on tightening industry capacity" than its competitors.

Business on 10/03/2017

Print Headline: J.B. Hunt preparing for driver pay hikes, other cost increases

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