Heading into the second quarter earning season there was some sentiment that the results posted by publicly traded freight transportation and logistics services providers would be one of a kind, or unique, in that they represented a quarter unlike any other, due, of course, to the ongoing COVID-19 pandemic.
And that is clearly true, given that these companies saw demand fall off a cliff, as the global and domestic economies essentially came to a halt, due to stay-at-home orders, which left the country wondering what was coming next, when things kicked in back in mid-March. Since then, the U.S. economy has reopened, to varying degrees, and some of the takeaways have been quite positive (within the big picture). But it is really is only a start, as there remains a large amount of economic trepidation and uncertainty, given the many millions of unemployment gains that have been occurring for weeks on end.
Those things rang clear in comments made by leadership at publicly-traded companies on second quarter earnings calls, with executives providing detail, or “color” as it is often alluded to, on their respective earnings calls.
J.B. Hunt President and CEO John Roberts noted on his company’s call that “comparisons to last year do not help illuminate much about where we find ourselves.”
And how could they, really? It is beyond apples and oranges, when comparing the second quarter of 2020 to the second quarter of 2019, or any other quarter.
But while the tail end of the first quarter and the early goings of the second quarter could be viewed as dire for many companies, Roberts explained that J.B. Hunt saw what he called a stable and steady cadence of demand,” especially for its Dedicated and Intermodal businesses.
What’s more, he also pointed to some potential signs of inflection in the demand curve, with the company keeping a close eye on import data, inventory levels, retail sales information, and customer input to “build confidence in the trends into the second half of the year.”
And Darren Field, J.B. Hunt executive vice president and president of Intermodal, explained that back in April, when the company was experiencing meaningful declines in its business, J.B. Hunt had what he called very little visibility into the second quarter as well as 2020, with that outlook still being the case now. And he added that early in the second quarter, there were closely watching over key readings like port activity levels, truck supply availability, and fuel prices, all key things that factor into business planning and operations.
Over at Werner Enterprises, Derek Leathers the company’s Vice Chairman, President and Chief Executive Officer, pointed to how the freight market began to improve in mid-May, which continued into June.
And he observed that the recent improvement in freight could portend what he called a more normalized peak season in the fourth quarter, with the caveat that this assumes there is no widespread round two of the stay-at-home order programs.
Leathers presented the current situation, as it relates to the impact of COVID-19, in blunt terms, noting that at the end of July [when Werner’s earnings call was held], COVID-19 case counts and deaths have been rising in the last few weeks in over half of the United States, with the return-to-school now starting, too.
“How we manage the virus as a society over the next few weeks and months will determine if there is a strengthening or slowing of economic activity going forward,” he said. “We believe, there are several factors that will constrain truckload supply in the back half of 2020, including below replacement level Class 8 truck builds, fewer eligible drivers as the Drug and Alcohol Clearinghouse database continues to build, aging truck driver demographics, lower driving school enrollments, an extremely challenging trucking insurance market and the expectations for increased trucking company failures.”
Unprecedented volatility in the freight industry was how C.H. Robinson President and CEO Bob Biesterfeld described second quarter results, with truckload net revenue per shipment heading up materially early in the quarter, while purchased transportation costs fell because of soft demand, which was followed by a sharp increase in the cost of purchased transportation, with businesses reopening.
This led to an increase in freight demand, while the number of active carriers declined, leading to a decline in net revenue per shipment while continuing to honor customer commitments amid what he called volatile market changes.
He noted that C.H. Robinson experienced large swings and year-over-year changes in truckload volume and demand, depending on the industry vertical and how it was impacted by COVID-19. As examples, he cited a 10% uptick in the combined verticals of retail, food and beverage, technology, paper and healthcare, offset by combined truckload volume declines of over 20% in industries that were directly impacted by the current environment such as automotive, manufacturing, chemicals and energy (which speaks to verticals have been impacted in different ways over the course of COVID-19).
Again, it goes without saying that the COVID-19 pandemic has been a game changer, probably more so than any other we have seen in our careers. This trio of public executives provided detailed overviews that addressed where things were, where they are, and where they could be headed. One thing that is clear is that things are uncertain and atypical. Don’t expect that to change anytime soon.