Trucking CEOs expect higher prices and potential disruption in second half

Trucks at the entrance to the Port of Oakland in Oakland, California, U.S., Thursday, July 14, 2022. Truckers serving some of the busiest ports in the United States stage protests as labor rules at State workers who change their employment status are starting to take effect, creating another choke point in struggling US supply chains.

David Paul Morris | Bloomberg | Getty Images

U.S. trucking CEOs expect to maintain pricing power even with slowing volumes in the second half of 2022 as retailers, manufacturers and consumers adjust to disruptions from Covid lockdowns, the Russian war -Ukrainian and inflation.

According to CEO Fritz Holzgrefe, a recent customer survey conducted by SAIA, a trucker for Starbucks, Home Depot and Lowe’s, found that the majority of companies are still struggling to figure out their next step and what the “new normal” is. for their business.

“They were talking a lot about continuing to replenish inventory, straightening out their supply chains throughout the year, even in the first part of next year,” Holzgrefe told CNBC. “Maybe things have slowed down a bit, but customers continue to reorganize their position in the supply chain to more effectively achieve their goals in their respective businesses.”

The supply chain is improving and past the worst, according to Derek Leathers, CEO of Werner Enterprise, which hauls freight for Amazon, Walmart and Target. But, he warned, headwinds for truckers will keep rates well above pre-pandemic levels for the rest of 2022.

“You’ll see rates holding up for the rest of the year. Our cost increases are real. Our customers understand that,” Leathers said. “We’re talking about large-scale winning brands like [Amazon and Walmart] and many others who know that trusting their operator is a competitive advantage. They want good quality transport, on time, always safely. To do this, they work with large, well-capitalized carriers.”

Trucking stocks were among the best performers in July, while the S&P 500 gained more than 7% this month. SAIA and ArcBest were up over 20%, while Werner Enterprises, Knight Swift and JB Hunt were up over 10%.

Earlier this year, there were concerns of a “freight recession” due to falling rates in the so-called spot trucking market. According to the most recent data from Evercore ISI, these rates are down more than 11% year over year. The spot market provides on-demand transportation of goods, and prices fluctuate based on supply and demand.

Spot trucking boomed during the height of the pandemic as companies adapted to tight supply chains and were willing to pay historic rates to transport goods during the e-commerce boom. However, the majority of trucking is still done through contracts with carriers and their customers such as large retailers.

Top companies in the three main trucking segments derive the majority of revenue from contracts – Knight Swift (full truck), FedEx (less truck) and JB Hunt (container shipping) – reported double-digit rate increases in their most recent earnings.

“We believe contract rates will hold. We believe contract rates will be at a level that will allow trucking companies to be remarkably profitable.” Amit Mehrotra, transportation analyst at Deustche Bank, told CNBC.

He also expects demand to be slightly lower but stable for the rest of 2022. “I think the inventory issues reported by large retailers like Walmart and Target are more reflective of changing shopping habits, rather than a significant pullback in consumer spending,” Mehrotra said.

The CEO of one of the largest trucking brokerage firms in the United States is also watching consumer spending.

“It’s clear the trucking market is different today than it was 12 months ago,” CH Robinson CEO Bob Biesterfield told CNBC’s “Squawk on the Street” on Tuesday.

He added that retail, housing and manufacturing are the main drivers of trucking volumes. Manufacturing held the best of those three, he added. Retail saw volume increase in the first quarter and decline in the second, Biesterfield said.

Another important question mark for the trucking industry is the outcome of labor negotiations at West Coast ports.

The contract between the unionized workers and the ports that handle about 45% of US imports expired on July 1, but work continued during ongoing negotiations. The two sides announced a tentative agreement on health care benefits as they continue to work on a deal on compensation, automation and other items. There have been halts, slowdowns or disruptions in the last three negotiations — in 2002, 2008 and 2014 — before a deal is reached, according to the U.S. Chamber of Commerce.

Holzgrefe, CEO of SAIA, said the threat of disruption is already driving changes in the supply chain.

“What we’ve seen is our customers from other ports or have been redirected to other parts of the country.” said Holzgrefe. “As the LA port becomes an issue again, we believe we can adapt to the needs of our customers. It will just cost more to operate efficiently.”

“The LA-Long Beach negotiations could be a disruptive moment.” said Leathers, CEO of Werner Enterprise. “There is pent-up demand in China that still needs to move if it emerges from the Covid lockdown, and that could create congestion and disruption. The effect on the consumer remains to be seen with the continued impact of the inflation.”

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