The strong freight demand, which has provided high earnings to trucking companies during the pandemic, appears to be easing as inflation and declining consumer satisfaction slow down a rush to rebuild stocks that have flooded distribution networks.
Prices in the trucking spot market are falling and analysts have begun downgrading companies in the sector as truck drivers prepare to report first-quarter earnings in a market signaling growing economic uncertainty.
The Cass Freight Index target for domestic shipping demand rose just 0.6% in March from the previous month, an unreasonable slowdown in growth at the end of the quarter. Freight payment company Cass Information Systems Inc.
said in an analysis of its closely monitored index that the freight market is clearly in a downturn.
At the same time, freight rates appear to be retreating from recent historical heights. Last-minute spot cargo prices in the truck market, which make up a fraction of the market but tend to lead to contract price trends, are declining as demand for freight comes closer to balance with available truck capacity. Spot prices for dry van excl. fuel surcharges have fallen by 37% since December and 27% in the past month, according to Bank of America Corp.
“I think it’s fair to say that the days of expecting rate hikes are pretty much over,” said Avery Vise, a truck analyst at FTR Transportation Intelligence. “It’s a question of how quickly things are going to normalize. The idea that you can just print money is over.”
The Bank of America’s truck capacity target available to shippers jumped to its highest level since June 2020 last week, while its target for shippers’ prospects for freight rates fell sharply to its lowest level since July 2020.
Lowell, Ark.-based JB Hunt Transport Services Inc.,
a bell for the US freight market will boost the sector’s earnings next week with its first report since the airline, which has a range of trucks, dedicated freight services and intermodal operations, counted $ 760.8 million in net profit in 2021, including $ 242.2 million in earnings in a booming fourth quarter.
The country’s largest truck ship, the Knight-Swift Transportation Holdings Inc.,
which reports earnings April 20, so revenue increased 28.3% last year to nearly $ 6 billion, including a 42% gain in revenue in the fourth quarter that generated a net profit of $ 254.6 million.
Profits limited an increase in profits for truck drivers during the pandemic, as a sharp rise in consumer demand and a rush by retailers to rebuild depleted store shelves caused freight networks to spiral and prices to rise.
Now, some shippers who had signed expensive contracts while searching for scarce capacity are putting those deals aside to look for lower prices in a changing market, said Jeff Tucker, CEO of Haddonfield, NJ-based freight broker Tucker Company Worldwide Inc. .
Transportation to trucking’s largest operators remains in high demand, but “should it be as exciting as the last few years going forward? Maybe not,” Mr Tucker said.
A. Duie Pyle, who is smaller than truckloads, is experiencing inflation cut in consumer trade, which supplies much of the demand for trucking, said John Luciani, LTL Solutions’ chief operating officer at the company. The West Chester, Pa.-based carrier’s first quarter was “weak” compared to last year’s robust growth, he said, with volumes growing by single-digit year-over-year instead of the double-digit rate the company expected.
Freight transport stocks have turned downwards as signs of a slowdown appear.
Dow Jones Transportation Average, which tracks 20 major U.S. companies, including truck giants JB Hunt and Ryder System Inc.,
is down 11% from a peak on March 29 compared to a 4% drop in the S&P 500 over the same period.
Bank of America analysts recently downgraded transportation stocks, including hauliers Werner Enterprises Inc.,
Schneider National Inc.,
Go out Inc.,
TFI International Inc.
and ArcBest Corp.
with reference to “deteriorating demand prospects and rapidly declining freight rates.”
Jason Seidl, a transport analyst at investment bank Cowen Inc.,
said headwinds from the impact of inflation and of the war between Russia and Ukraine will present challenges for the airlines after a strong period of growth. “I think the overall tone of earnings coming up on the truck side will be a big chunk of reality from last month,” said Mr. Seidl.
Write to Lydia O’Neal at email@example.com
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