Publicly traded U.S. fleets have begun reporting Q1 earnings, and they aren’t pretty. Spot market rates continue to be below operating costs, squeezing smaller carriers out of the marketplace. But equipment demand remains healthy, albeit at lower levels than we’ve seen.
Truck tonnage has seen its sharpest decline since the start of the pandemic, and industry forecaster FTR has reported worsening overall trucking conditions.
These are some of the economic highlights (lowlights?) from the week that was, delivered to you in the first of our weekly Economic Trucking Trends roundup. Let’s get into it:
U.S. earnings season off to ominous start
Publicly traded U.S. truckers have begun reporting Q1 earnings, and those earnings paint a picture of a challenging operating environment. J.B. Hunt saw Q1 revenue slide 7%.
Its truckload revenue per load dropped 17%, and final mile services also saw revenue fall 17%. Perhaps most startling, it saw a 38% decrease in total freight transactions on its Marketplace for J.B. Hunt 360 platform.
President Shelley Simpson had this to say to analysts on an earnings call: “We’re in a challenging freight environment where there is deflationary price pressure for an industry that continues to face inflationary cost pressures. Simply stated, we’re in a freight recession.”
The story was similar elsewhere. Knight-Swift reported a 10.4% decrease in revenue and a 49.9% decrease in consolidated net income. Truckload revenue fell 8% year over year.
“The unusually soft demand experienced in the fourth quarter of 2022 continued through the first quarter of 2023, as demand proved worse than expected,” CEO David Jackson said in a release. “This weakness in demand has continued thus far in April.”
Marten Transport fared better, with an earnings beat and operating revenue improvement of 3.7% in the first quarter. Executive chairman Randolph L. Marten predicted the current conditions will spell the end for many smaller carriers. “The market has become unsustainable for the smaller carriers who comprise a significant portion of total capacity, and who are expected to continue the recent increased industry exit rate,” he said in a release.
How are Canada’s publicly traded truckers making out? We’ll find out soon enough, with TFI International and Mullen Group reporting next week.
Capacity rebalancing underway
Industry analyst ACT Research says freight demand is likely to remain soft for some time, but capacity removal will be key to rebalancing. Plenty of rebalancing will need to occur to right the ship, it reports.
“Spot rates are now about 17% below truckload fleet operating costs in Q2, worse than the 15% operating loss in Q1, by our estimates,” said Tim Denoyer, ACT Research’s vice-president and senior analyst.
“Failures started to pick up when the loss reached 10% in Q4 2022. This was a record at the time, and we see Newton’s third law of motion at work as the rebalancing requires a string of record losses following record pandemic profits. Q2 is the fourth straight quarter of significant losses, and both the time and magnitude of the losses should send a strong enough signal to tighten capacity.”
He added, “The pendulum of pricing power has been firmly with shippers for some time, and the cudgel of lower rates is starting to impact capacity. Though new equipment production remains elevated, hiring and fleet exit trends tell us capacity is slowing at the margin. With marginal fleets scrambling for miles with busted budgets, spot rates have gone far below costs, but this can only go on so long.”
Freight conditions deteriorating
The spot market remains under pressure. Truckstop and FTR Transportation Intelligence reported data for the week ended April 14 largely show ongoing weakness in spot rates for dry van and refrigerated freight. (See chart above).
“In the latest week, both segments saw their largest drop in broker-posted rates since January. Dry van rates have retreated for six straight weeks and have declined in 12 of 15 weeks this year,” the companies report. “Refrigerated rates declined for the fourth consecutive week and have fallen in all but four weeks this year. Flatbed rates essentially held steady during the week, eking out a marginal gain over the prior week.”
Carriers focused predominantly on hauling contract freight haven’t been immune to the slowdown. The American Trucking Associations (ATA) reported a 5.4% drop in for-hire truck tonnage volumes in March, the largest sequential decline seen since the beginning of the pandemic and the first year over year decrease since August 2021.
Industry forecaster FTR’s Trucking Conditions Index fell from -1.71 in January to -5.17 in February, reflecting weakening trucking conditions.
“Freight volume is holding up better than many anticipated, but downside risks are substantial,” said FTR’s vice-president of trucking Avery Vise. “Although fears of a major banking crisis have abated since March, tighter lending standards by banks on top of the Federal Reserve’s interest rate hikes could slow the economy further.”
Trailer demand slows, remains healthy
Trailer orders fell 33% in March from February levels, according to preliminary data from ACT Research, with 16,800 units ordered. That number was also a 56% year over year decline.
The pullback in orders occurred earlier than usual, ACT reported, but Jennifer McNealy, director – commercial vehicle market research and publications, said current demand continues to be ‘healthy.’
“Orders pulling back in March is a month earlier than normal seasonality would suggest, but near record-level order backlogs are easy to point to in explaining away the earlier-than-expected deceleration,” she said. “Despite March’s drop in orders, we believe demand remains healthy and we’re seeing improved, albeit still somewhat challenged, build data.”