US carrier CEOs expect pricing to remain strong even as volumes decline in the second half of 2022 as retailers, manufacturers and consumers adjust to disruptions from Covid lockdowns, the Russo-Ukrainian war and inflation.
A recent customer survey conducted by SAIA, a truck driver for Starbucks, Home Depot and Lowe’s, revealed that the majority of companies are still working to figure out their next step and what the “new normal” for their business is, according to CEO Fritz Holzgrave.
“They’ve been talking a lot about continuing to rebuild inventory positions, and straightening their supply chains during the year’s budget, even into the early part of next year,” Holzgrave told CNBC. “Things may have slowed down a bit, but customers still continue to re-rank their position in the supply chain to more effectively achieve their goals in their business.”
Trucks at the entrance to the Port of Oakland in Oakland, California, US, on Thursday, July 14, 2022. Truck drivers serving some of the United States’ busiest ports stage protests as statewide labor rules that change their employment status begin to enter. , creating another choke point in stressed US supply chains.
David Paul Morris | Bloomberg | Getty Images
The supply chain is getting better and getting past the worst, according to Derek Leathers, CEO of Werner Enterprise, which moves freight to Walmart and Target. But he warned that truck drivers’ headwinds would keep rates well above outbreak levels for the rest of 2022.
“You’ll see prices continue through the end of the year,” Lathers said. “Our cost increases are real. Our customers know that.” “We are talking about winning brands at scale like [Walmart and Target] And many others who know that relying on their carrier is a competitive advantage. They want high-quality transportation, on time, and every time safely. To do this, they work with large, well-capitalized carriers.”
Trucking stocks were among the top performers in July, while the S&P 500 is up more than 7% this month. SAIA and ArcBest are up more than 20%, while Werner Enterprises, Knight Swift and JB Hunt are up more than 10%.
Earlier this year, there were concerns about a “freight stagnation” due to lower rates in the so-called spot market for trucking. According to the latest data from Evercore ISI, these rates are down more than 11% year over year. The spot market provides on-demand freight transportation services, and prices vary based on supply and demand.
Trucking immediately experienced a boom at the height of the pandemic as companies adapted to crowded supply chains and were willing to pay historic prices to move goods during the e-commerce boom. However, the majority of trucking operations are still done through contracts with carriers and their customers such as large retailers.
Leading companies in the three main trucking sectors generate the majority of revenue from contracts — Knight Swift (full truckload), FedEx (less than truckload) and JB Hunt (container freight) — have reported double-digit rate increases in the most recent earnings.
“We believe contract rates will hold. We believe contract rates will be in a position to allow carriers to be remarkably profitable.” Deutsche Bank transportation analyst Amit Mehrotra told CNBC.
Demand is also expected to be slightly lower but stable for the rest of 2022. “I think the inventory issues being reported by major retailers like Target are a reflection of changing buying patterns, not a significant withdrawal of consumer spending,” Mehrotra said.
The CEO of one of the largest truck brokers in the US also monitors consumer spending.
“The truck market is clearly different today than it was 12 months ago,” CH Robinson CEO Bob Basterfield told CNBC on Tuesday.
He added that retail, housing and manufacturing were key drivers of trucking volumes. He added that industrialization has turned off the best of those three. Bisterfield said the retail business saw an increase in volume in the first quarter and a decline in the second quarter.
The outcome of the business negotiations at the West Coast port is another big question mark for the trucking industry.
The contract between union workers and ports that handle about 45% of US imports expired on July 1, but work continued during ongoing negotiations. The two sides announced an initial agreement on healthcare benefits as they continue to work on a deal related to reimbursement, automation and other points. There have been pauses, slowdowns or disruptions during the last three negotiations – in 2002, 2008 and 2014 – before a deal was reached, according to the US Chamber of Commerce.
Holzgrave, CEO of SAIA, said the threat of disruption is already leading to supply chain shifts.
“What we’ve seen are other ports for our customers or they reroute other parts of the country.” Holzgrefe said. “To the extent that the Port of Los Angeles becomes an issue again, we feel we can adapt as our customers need. It will be more expensive to operate efficiently.”
“Los Angeles Long Beach Negotiations Could Be a Disrupting Moment”. Leathers, CEO of Werner Enterprise said. “There is pent-up demand in China that still has to act if they come out of the Covid lockdown, and that could lead to some congestion and some disruption. There is still an impact that is not yet visible on the consumer with the continuing impact of inflation.”