Searching out deep value in US trucking
Weakness in the price?
The road ahead remains bumpy for US trucking operators, as macroeconomic indicators point to soft demand, while capacity remains high.
According to the latest Uber Freight Market Update & Outlook, this is corroborated by low-key projections from carriers as they tabled their results for the first quarter.
Uber Freight’s analysts draw a picture of a market characterised by sluggish demand, and ample capacity – and in Q1 last year, capacity expanded 7%, whereas demand was down 1%.
This is keeping the pressure on rates and has resulted in more tender acceptance rates as carriers scramble for business.
The major drivers of demand seem stuck in low gear. Relative to sales, inventories have been stable, as consumer spending was largely flat in the quarter. Manufacturing fared worse, with output shrinking 1.1%, year on year, in March. Manufacturing has contracted for six months and new orders point to more contraction ahead, which is expected to translate into lower volumes.
With these macroeconomic indicators suggesting lacklustre demand in the coming months, Uber Freight’s analysts see no signs of a market rebound. Recovery, widely predicted earlier in the year, is receding further into the future.
And this outlook is echoed in the recent earnings calls by major operators.
Old Dominion has revised its expectations for Q1 and continues to focus on managing costs, said CEO Greg Gantt, and while Mark Rourke, president and CEO of Schneider National, sees a chance of moderate recovery in the second half, he stressed that the outlook was uncertain.
And Heartland Express CEO Mike Gerdin, added: “Demand is significantly less than it has been in the last two years, along with significant pressure from many shippers to reduce freight rates while operational costs continue to rise.”
First tender acceptance rates reflect the carriers’ predicament. They stood at 94.3% in the dry van segment, 94.7% in the reefer van category and 99% for intermodal traffic.
Carriers have been struggling. According to Uber Freight, carrier authority revocations eased in the first quarter, but remain “very high”.
The driver pool expanded 3.1%, year on year, in the first quarter, with 2,400 more jobs, although finding long-distance drivers remained challenging. Uber Freight predicts weaker growth in new jobs, going forward, due to the stagnating demand.
The truckload sector continued its journey through a challenging market with spot rates largely flat throughout Q1, while contract rates were in decline as shippers pressed for cost cuts.
Although truckload spot rates did not move much in the first quarter, Uber Freight analysts concluded that there was no sign of a bottom and expect prices to decline further before the summer produce season kicks in. This should bring some modest rate increases, but of no lasting impact, they noted.
With the PMI in contraction, less-than-truckload (LTL) carriers expect volume decline. The sector continues to fare better than truckload, thanks to higher entry barriers and better pricing discipline, but it is feeling the pressure. Most affected has been Yellow Freight, which reported a 12% Q1 drop in tonnage.
Despite the pricing discipline, LTL rates continue to decline slightly, as carriers are more aggressive in their pursuit of new business, according to Uber Freight. And, on the bright side, on-time performance has improved in the sector, analysts observed.
For intermodal service providers, the quarter proved another disappointing spell. Volumes have been down in 19 of the past 20 months, sending spot rates down to levels not seen since 2016. And Uber Freight’s analysts don’t expect a rebound in the sector before 2024, but any growth will be from a low base this year, they predicted.
In the longer term, they expect supply issues for over-the-road capacity to drive volumes to intermodal carriers. But now, however, the sector is being severely hit by the decline in imports, they note, adding that some customers shifted traffic to road for faster transits.
However, Uber Freight pointed out that the labour dispute on the US west coast did not appear to be a factor and noted that intermodal volumes in Canada had declined even more than in the US. In fact, the intermodal market has been weak right across North America. Volumes held up best in Mexico, but that market has traditionally been characterised by high volatility.
With clouds over macroeconomics, recovery for truckers remains elusive. They will have to navigate the coming months in low gear.
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