Trucking Q4 Earnings Show Continued Sluggish Market
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Fourth-quarter financial results from within the trucking industry showed carriers continue to navigate a sluggish market with little signs of a turnaround, according to analysts.
“On the truckload side, we’re still searching for a way out,” TD Cowen analyst Jason Seidl said. “I think we’re still just bouncing along the bottom, as they say, and it’s been one of the, probably, more prolonged downturns that I can remember.”
Seidl also pointed out that carriers are having to contend with too much capacity and not enough demand amid contract negotiation season. He also noted that prices can’t come down much more because carriers are still facing higher operational costs. He has seen companies express optimism for a turnaround in the back half of the year, but he hasn’t seen much data to support that other than what their customers are telling them.
“I don’t think many people are going to have numbers for the back half of the year just yet,” Seidl said. “So I think everyone’s just hoping things get a little bit better when you hit the peak shipping seasons. And then, also at the same time, the carriers are seeing capacity on the truckload side come out of the marketplace, just not at a fast enough pace.”
Seidl
TD Cowen noted in a report that less-than-truckload came in above consensus expectations with its core pricing power and volumes remaining strong going into bid renewals. Yellow Corp. going out of business freed up freight in the LTL market, but the report noted tonnage growth was mixed, as those tailwinds were partially offset by demand softness from industrial customers. Seidl has even seen some carriers renegotiating contracts upward of 9% during the quarter.
“It was probably more similar to ’22 than different,” Stifel Capital Markets analyst Bruce Chan said. “There was a slight improvement, I would say, in overall volumes, just because the comparison was so weak in 2022, but still generally quite a soft quarter. If I were to look at unique features of it, there was probably a little bit more discounting in 2023 than there was in 2022. That probably helped to move a little bit more in terms of volume.”
Chan
Chan added there seems to be a growing consensus around a back-half recovery. But he added that at this point last year, a lot of companies also were talking about a back-half recovery. However, he has seen more optimism this time around.
“Obviously, it was a very challenging year in ’23 for the industry as a whole,” Chan said. “I don’t think there was one subsector that really escaped from the pressures of a trough freight environment which was exacerbated by the really, I think, unprecedented 2021 and early 2022 comps. So the wind down from that kind of super cycle upswing has been particularly painful.”
Chan noted there are positive tailwinds going forward, such as consumer demand remaining resilient and inventories normalizing. But he also warned that’s coming up against geopolitical and economic risks.
Hoexter
Bank of America analyst Ken Hoexter said, “In trucking overall, we certainly had, what some noted, was a decent peak, and then many noted that it just didn’t materialize. You had a couple of contrasting views, and then that led into January, where we had these storms. So while you’re finally analyzing what happened [in the] fourth quarter, January started off pretty ugly.”
Hoexter added that the industry has had time to try and catch up with normal seasonality through February. But the traditional weaker start to the year is usually balanced out by a bump in March.
“I’d say from the truck shipper surveys that we do every two weeks, the outlook is certainly off the floor, but not off to the races,” Hoexter said. “We’re starting to see some improvement in the demand outlook, but it’s still somewhat muted overall. So it’s improving from a … historically lower base.”
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Hoexter has seen positive market signals, such as demand indicators being at the second-highest level in 17 months. He also has seen ongoing inventory improvements, though they’re still elevated versus historical averages, and that capacity had continued to tighten.
“But again, it didn’t really accelerate, so that’s why, given that backdrop, spot pricing … really hasn’t taken off,” Hoexter said, noting that spot is only 15% of the market. “We bounced up $1.46 to $1.49 the last few weeks, and here we are just below $1.40 right now. So you’re still operating below the $1.50 cost per mile, and that means we should continue to see capacity coming out. It’s just taking longer.”
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