(SyndicateMyNews) - Rising fuel cost is hurting the transportation sector, according to Longbow Research transportation analyst Lee Klaskow, who says that diesel prices have reached their highest levels since Hurricane Katrina.

But even though fuel costs have skyrocketed, some companies are reporting stronger results. Last Mile Logistics Group, Inc. (OTCBB: LMLG) reported a 37% upsurge in revenue in the first-quarter of this year, which was on top of a 46% gain the fourth-quarter of 2007.

Last Mile Logistics said Thursday that "Despite the increase in fuel costs over the past twelve months, LMLG also increased its gross margin in the first quarter of 2008 by 26%." The Elkridge MD-based trucking company attributed the increase in revenue to a new customer while seeing a 26% rise in gross earnings thanks to fuel surcharges that offset the increase in fuel costs.

Longbow's Klaskow noted that "the rapid rise in diesel prices impedes the industry's ability to fully recover its costs due to the lag in fuel surcharge recovery."

For every penny increase in the cost of diesel fuel it costs the trucking industry $390 million. The Energy Information Administration noted that the national average cost for on-highway diesel fuel increased by 22.6 cents (5.0%) to an all-time record $4.723 as of May 26.

LMLG noted in its quarterly earnings release that it "has benefited from the continued outsourcing by companies to reduce their cost structure."

Regina Flood, CEO of Last Mile Logistics Group said, "we are seeing a significant improvement in revenue as companies continue to look to outsource their logistics requirements to dependable last mile providers."

LMLG isn't alone. Last week Friday, Stephens Inc. analyst Thom Albrecht said Con-Way Inc. (NYSE: CNW) second-quarter earnings should show improvement, reiterating his "Overweight" rating on the stock.

Knight Transportation (NYSE: KNX) increased its quarterly dividend to 4 cents from 3 cents on May 27th. Wachovia analyst Justin Yagerman upgraded the trucking company's stock but remained pessimistic towards other trucking stocks due to the sluggish U.S. economy.

According to the ATA's latest report, its April 2008 seasonally adjusted For-Hire Truck Tonnage Index, which fell 1.1% over March and marked the third consecutive month in a row that freight tonnage has declined, which may have effected some analysts take on the transportation sector. Longbow believes that tonnage will continue to decline due in part to lagging consumer confidence that's now at a 16-year low. But try telling that to Last Mile Logistics' Flood who says her trucking company focuses on marketing her Company's ability to deliver "quality last mile services."