Indicators of the trucking market’s financial health in the fourth-quarter earnings of Canada’s BMO, a leading lender to the trucking industry, showed some weakening but not by a huge amount.
BMO’s transportation group is believed to be about 90% focused on trucking, with a client list of at least five figures. The breakout of that group’s finances each quarter can shed some perspective on how the industry is doing financially beyond the large publicly traded carriers, as the BMO (TSX: BMO.TO) portfolio is believed to be made up of thousands of small to medium-sized carriers.
In the case of the Q4 earnings released Thursday, they represent the three months ended Oct. 31, a period during which spot trucking rates, as measured by the NTI in FreightWaves SONAR, fell to $2.55 per mile at the end of the month from $2.80 at the start of August. On Thursday, NTI was at $2.59 per mile.
Increases in write-offs and allowances for bad debt were almost inevitable even without a significant freight recession. Many of those indicators were at unprecedented low levels in data going back to 2015, when BMO purchased the transportation group of GE Capital..
So the figure for write-offs rose 50% between the third and fourth quarters. But what that means in actuality is that the Q4 write-off figure came in at CA$3 million ($2.24 million). Write-offs in Q3 were CA$2 million. In the second quarter, they were CA$1 million.
A year ago in the fourth quarter of 2021, write-offs in BMO’s transportation group were CA$6 million.
With all four quarters in BMO’s fiscal year complete, the totals are stunning. For the year, BMO’s transportation group took write-offs of CA$8 million. A year earlier, it was CA$33 million. And in fiscal 2020, which would have included the heart of the pandemic, the write-offs total was CA$113 million.
Allowances for credit losses also rose in the quarter, but again, coming from an already-low level. An allowance for a credit loss is a company’s estimate of debt that it is unlikely to recover.
In the fourth quarter, BMO declared CA$10 million in allowances for its transportation group. In the third quarter, the allowances figure was CA$8 million. The second-quarter total was CA$12 million.
A year ago, allowances were CA$17 million.
A loan can be impaired before an allowance is taken against it. That measure, impaired loans and acceptances, also rose in the quarter. But like the other measures of health of the BMO transportation book of business, it also rose by just a small amount, coming in at CA$73 million for the fourth quarter. It was CA$72 million in the third quarter and CA$76 million in the second.
BMO shows no sign of pulling back from the trucking business. Its gross loans into the transportation sector for Q4 were CA$14.7 billion, the largest in its history. The net book of business for transportation is reached by taking the gross loans and subtracting allowances.
With the former being the highest ever and the latter still just a mere CA$10 million, the net loans and acceptances of BMO’s transportation group came in at CA $14.69 billion, also a company record.
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