U.S. trucking CEO sees pricing power even as volumes drop in second half of 2022 as retailers, manufacturers and consumers adjust to disruptions from Covid lockdowns, Russia-Ukraine war and inflation expect to maintain.
A recent customer survey by SAIA, the shipping company for Starbucks, Home Depot and Lowe’s, found that the majority of businesses are still trying to figure out their next steps and what the “new normal” for business is, according to the CEO. Fritz Holzgrefe said.
“They’ve been talking a lot about continuing to rebuild their inventory positions and sorting out their supply chains through the rest of the year,” Holzgrefe told CNBC. “Things may have slowed down a bit, but customers continue to reorganize their supply chain positions to be more effective in achieving their goals in their respective businesses.”
Trucks at the entrance to Oakland Harbor in Oakland, California, USA on Thursday, July 14, 2022. Truck drivers serving some of the busiest ports in the U.S. are protesting as state-level labor rules that change employment conditions begin to be introduced. A new chalk his point in his chain of US supplies affected and stressed.
David Paul Morris | Bloomberg | Bloomberg | Getty Images
According to Derek Leathers, CEO of Warner Enterprises, which transports cargo for Walmart and Target, supply chains are improving and the worst is over. But he warned that headwinds for truck drivers could push rates well above pre-pandemic levels for the rest of 2022.
“Rates will remain on hold for the rest of the year. Cost increases are real. Customers understand that,” Leathers said. “We are talking about massively successful brands such as: [Amazon and Walmart] And many others who know that career dependence is a competitive advantage. They want high-quality transportation, on time, and safely at all times. To do so, they work with large, well-capitalized carriers. ”
The S&P 500 is up more than 7% this month, but trucking stocks were the best performers in July. Sire When ArcBest increased by more than 20%, while Werner Enterprises, night swift When JB Hunt increased by more than 10%.
Earlier this year there were fears of a “freight recession” as rates fell in the so-called spot market for trucking. According to Evercore ISI’s latest data, these rates are down more than 11% year-over-year. The spot market offers on-demand freight forwarding and prices depend on supply and demand.
Spot trucking boomed at the height of the pandemic as companies adapted to disrupted supply chains and were willing to pay historic fees to transport goods during the e-commerce boom. However, the majority of trucking is done through contracts with carriers and also has customers such as large retailers.
Major players in three major segments of trucking account for the majority of contract revenue. FedEx (less than trucking) and JB Hunt (container shipping) recently reported double-digit growth in revenue.
“We believe the contract rate will be maintained. We believe the contract rate will be a place that will allow trucking companies to be very profitable.” Amit Amit, transportation analyst at Deutsche Bank Melotra told CNBC.
He also expects demand to remain stable for the remainder of 2022, with a slight decline. He said.
The CEO of one of the largest trucking companies in the US is also keeping a close eye on consumer spending.
“Obviously, the trucking market today is different than it was 12 months ago.” CH Robinson CEO Bob Biesterfield said Tuesday on CNBC’s “Squawk on the Street.”
He added that retail, housing and manufacturing are the major drivers of trucking volumes. Manufacturing is the best of the three, he added. Biesterfield said retail saw a rise in sales volume in the first quarter and a decline in the second quarter.
The outcome of the West Coast dockworker negotiations is another big question mark for the trucking industry.
The contract between the port and the union, which handles about 45% of US imports, expired on July 1, but work continues during ongoing negotiations. The two sides have announced a preliminary agreement on medical benefits as they continue to work on deals on coverage, automation and other things. The past three rounds of negotiations in 2002, 2008 and 2014 have been interrupted, slowed down or disrupted. before reaching a contract According to the U.S. Chamber of Commerce.
SAIA CEO Holzgrefe said the threat of disruption is already leading to changes in supply chains.
“What we’ve seen is customers moving to other ports or redirecting to other parts of the country,” Holzgraef said. “To the extent that the Port of Los Angeles is a problem again, we feel we can adjust to customer needs. It just costs money to operate efficiently.”
“The negotiations between Los Angeles and Long Beach can be a disruptive moment,” said Leathers, CEO of Werner Enterprises. “Even after the coronavirus lockdown is lifted, China still has stagnant demand that will have to move, which could lead to congestion and disruption. We have yet to see the impact of