U.S. trucking executives expect pricing power to continue even as volumes soften in the second half of 2022 as traders, manufacturers and consumers adjust to disruptions from Covid-19 lockdowns, the Russia-Ukraine war and inflation.
In a recent survey by SAIA, a trucker of Starbucks, Home Depot and Lowe’s, most companies are still working out their next step and what the “new normal” is for their business, according to CEO Fritz Holzgrefe.
“There was a lot of talk about continuing to rebuild their inventory positions, correcting their supply chains in the balance of the year, as well as the first part of next year,” Holzgrefe told CNBC. “Things may have slowed down a bit, but customers continue to re-order their supply chain position to more effectively achieve their goals in their businesses.”
Trucks in Oakland, California, USA, Thursday, July 14, 2022. Truckers who patrol some of the busiest ports in the US are protesting as state labor rules change their working conditions. effect, creating another stranglehold on already 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 merchandise for Walmart and Target. But, he warned, headwinds for truckers will keep rates well above pre-pandemic levels into 2022.
“You’re going to see the rates hold for the rest of the year. Our cost increases are real. Our customers understand that,” Leathers said. “We are talking about successful large-scale brands [Amazon and Walmart] and many others who know that trust in their carrier is a competitive advantage. They want good quality transport, on time, safely. To do this they work with large, well-capitalized carriers.”
Trucking stocks have been some of the best performers in July, with the S&P 500 gaining 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 recession” as rates in the so-called truck spot market fell. According to the most recent data from Evercore ISI, these rates have fallen by more than 11% year-on-year. The spot market offers on-demand freight transportation, and prices fluctuate based on supply and demand.
Spot trucking saw a boom during the pandemic, as companies adjusted to supply chains and were willing to pay historic freight rates during the e-commerce boom. However, the majority of trucking is still done through contracts with carriers and their customers such as large retailers.
The major companies in the three major trucking segments that derive most of their revenue from contracts — Knight Swift (full truckload), FedEx (less than truckload) and JB Hunt (container shipping) — have recently reported double-digit rate increases. profits
“We think the contract rates are going to hold. We think the contract rates are going to be in a place that will allow the trucking companies to be incredibly profitable.” Deustche Bank transport analyst Amit Mehrotra told CNBC.
It also expects demand to be slightly lower but stable by 2022. “I think the inventory problems that big retailers like Target are reporting are more a reflection of changing shopping patterns than a significant reduction in consumer spending,” Mehrotra. he said
The CEO of one of the largest trucking brokerages in the United States is also watching consumer spending.
“Clearly the trucking market is different today than it was 12 months ago,” CH Robinson CEO Bob Biesterfield said on CNBC’s “Squawk on the Street” Tuesday.
He added that retail, housing and manufacturing are the main drivers of truck volume. Manufacturing has held the best of the three, he added. Retail trade increased volume in the first quarter and declined in the second, Biesterfield said.
The outcome of West Coast port labor negotiations is another big question mark for the trucking industry.
The contract between union workers and the ports, which handle roughly 45 percent of U.S. imports, expired on July 1, but they have continued to work on ongoing negotiations. The two sides announced a tentative agreement on health benefits as they continue to work on an agreement on compensation, automation and other points. In the last three negotiations – in 2002, 2008 and 2014 – there were stoppages, slowdowns or interruptions. before reaching an agreement, according to the US Chamber of Commerce.
SAIA CEO Holzgrefe said the threat of disruption is already causing changes in the supply chain.
“What we’ve seen is our customers have been redirected to other ports or other parts of the country.” said Holzgref. “To the extent that the Port of LA becomes an issue again, we feel we can adapt to what our customers need. It will be more expensive to operate efficiently.”
“LA-Long Beach negotiations could be a moment of disruption.” said Leathers, CEO of Werner Enterprise. “There is still demand in China that needs to move if they come out of the Covid lockdown, which could lead to some congestion and disruption. The impact of the continued impact of inflation on the consumer remains to be seen.”
Trucking CEOs expect high prices, demand in the second half of 2022
Source link Trucking CEOs expect high prices, demand in the second half of 2022