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Behind the Solid Revenue Rise in J.B. Hunt’s Dedicated Contract Services in 3Q17

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DCS revenue in 3Q17

The DCS (Dedicated Contract Services) segment is the second-largest revenue provider for J.B. Hunt Transport Services (JBHT), contributing 23% in 3Q17. In the same quarter, the DCS segment’s revenues grew 11% to $438.0 million, up from $394.0 million in 3Q16.

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Behind the DCS revenue rise

The DCS segment’s productivity is measured by revenue per truck per week. Productivity rose ~2% YoY (year-over-year) in 3Q17, but excluding the fuel surcharges, the segment’s productivity remained unchanged.

This revenue rise was driven primarily by the improved integration of assets between customer accounts, which was negatively offset by reduced productivity at new contracts.

Notably, JBHT is the largest dedicated service provider in North America. Dedicated trucking facilitates shippers to outsource their transportation functions by allowing the shippers to focus on their prime business. This is usually referred to as “private fleet conversion.”

Peer group comparison

In 2Q17, JBHT’s DCS segment reported a 7.6% YoY rise, while Swift Transportation (SWFT) reported an 8% rise in its comparable segment. SWFT’s merger with Knight Transportation (KNX) will likely make the company a formidable competitor for JBHT in the US trucking sector. Werner Enterprises’ (WERN) dedicated contract service business is a part of its Truckload segment, whose revenue rose 4% in 2Q17.

Investors interested in indirectly holding transport stocks can consider the SPDR S&P Transportation ETF (XTN). Major railroads (UNP) and trucking companies in the US make up 12.9% and 22.3%, respectively of XTN’s holdings.

In the next part, we’ll discuss J.B. Hunt Transport’s Integrated Capacity Solutions segment.

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