Trucking industry peak season looks healthy, not as strong as 2017

Trucking and transportation analysts recently hosted fall conferences, and they followed them with notes showing the truckload freight market continues to remain positive but not as strong as it was in late 2017 or early 2018.

Little Rock-based investment bank Stephens Inc. hosted 16 public companies, private fleets and shippers at its fall conference, including truckload, less-than-truckload and intermodal companies. The less-than-truckload segment has benefited from good industrial and retail sectors, and intermodal is expected to benefit from more balance on volume and price in 2019, according analyst Brad Delco and associate Scott Schoenhaus, both with Stephens.

“We believe these takeaways suggest that freight fundamentals remain largely favorable for the group and that peak season trends are starting to develop, setting up for 2019 bid season that should continue to see positive pricing trends,” Delco and Schoenhaus noted.

Freight demand moderated in the second half of 2018, and the fourth quarter peak is more normal compared to the peak in 2017, said senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird. It recently hosted transportation companies at its 48th Global Industrial Conference.

They also said the impact related to the pending tariff increases on China is mixed. Some carriers have not noticed any pull-forward in inventory, but some have seen strength in ocean freight related to the tariffs. Several carriers also have seen strength in freight volume from the U.S. West Coast, and this is typical with seasonal trends. Pricing growth for 2019 remains positive, with mid-single-digit increases in contract truckload rates.

Rail service issues have impeded intermodal growth for Lowell-based J.B. Hunt Transport Services, but company leadership believes railroad Norfolk Southern Corp. will put priority on intermodal for growth as it works on its new operating plan, according to Hartford and Reed. Rail network changes are expected to put pressure on load growth in 2019, but the changes could lead to more consistent intermodal volumes in the longer term. Intermodal growth is expected to be balanced between volume and price in 2019. In the fourth quarter, volumes have yet to moderate, and the peak season is expected to be strong yet not as strong as it was in 2017.

Freight volume from the West Coast started to rise in October, and this is a sign of normal, healthy peak season, according to Delco and Schoenhaus. The intermodal peak season starts earlier than the truckload peak because of when containers reach the West Coast and how they are shipped across continents. The next round of tariffs could lead demand to remain strong through December, and this would be atypical for intermodal but could lead to a decline in intermodal container volume from the West Coast in early 2019.

Also, growth has been strong in the carrier’s dedicated fleet as a result of commitments in the fourth quarter and the first quarter of 2019, Hartford and Reed said. Carriers, such as J.B. Hunt, are optimistic about final mile delivery, which is included in the carrier’s dedicated segment, but so far, the success has been limited for the bulky-item service. In the first quarter of 2019, the company plans to add 250 to 300 new trucks as a result of new dedicated contracts, according to Delco and Schoenhaus.

TURN DOWNS HIGH
Trends remain healthy for the trucking industry, and some carriers have noted that they continue to turn down a high level of loads, Delco and Schoenhaus said. However, all carriers at the Stephens conference believed the biggest issue is the challenged driver market, but some have been successful at recruiting and retaining drivers. As a result, capacity has remained tight. Carriers likely will continue to give driver wage increases throughout 2019.

“On the positive side, demand still seems to exceed supply and likely to get more favorable for truckers between now and year end,” according to Delco and Schoenhaus. “On the concerning side, we felt there was a subtle but consistent theme regarding truckers being able to seat trucks and/or expand fleets in recent weeks. While some of that is normal seasonality and in other instances company specific (Swift and [Van Buren-based carrier USA Truck] come to mind), it is likely to raise some eyebrows if that theme develops further.”

USA Truck executives noted the biggest issue with third-quarter 2018 financial results was the lack of drivers to fill truck seats. However, the company has made progress.

“Management noted that freight volumes were sold in the first half of October, but during back half of October freight picked up and that has continued so far into November,” wrote Delco and Schoenhaus. “On the recent acquisition of Davis Transfer, management noted that this has given (USA Truck) access to some good technology, more exposure to the Southeast market, greater density with existing customers in addition to some new customers and solid leadership while also being accretive to earnings.”

Some of the positives for the industry would include an improved trade relationship with China, an improved outlook for a nationwide infrastructure deal in order to increase freight demand and put more pressure on the available driving workforce.