Top trucking executives say freight recession is nowhere in sight

Is it or isn’t it?

Is the booming market for trucking services – truckload and less-than-truckload (LTL) – finally slowing down after an unprecedented two years of demand following the COVID-induced economic lockdown of early 2022?

To read the headlines of the financial press, one might say the answer is yes. But talk to the top trucking executives in the country, and one might find a different answer.

Top trucking executives say the fear of an economic slowdown is greater than any actual drop-off in freight volumes. Trucking traditionally has been a leading economic indicator of any indication of a recession.

“If you believe the headlines we read from the investment community you would think so,” Chuck Hammel, president of Pitt Ohio, the nation’s 15th-largest LTL carrier, told LM.

“However, we are not seeing that yet. Our customers continue to be busy for the most part and our industry still has major issues getting new equipment and drivers,” Hammel added.

He said Pitt Ohio’s freight volumes are at historic levels but growing slower than last year. “We went from having an extremely strong economy in 2021 to a strong economy this year,” Hammel said.

Or as David Jackson, CEO of Knight-Swift Transportation Holdings, said during a first-quarter earnings call with Wall Street analysts, “Reports of the death of the freight market ... have been greatly exaggerated.”

Exaggeration may have begun in mid-April with this headline in the Wall Street Journal: “Trucking boom hits the brakes.” It noted the inevitable drop in spot trucking rates after two years of sky-high prices.

But in actuality, trucking services are sold under contract rates with large national accounts. About three-fourths of these national accounts move under contract rates. These rates, which are less volatile than spot rates, are continuing to hold up quite well at renewal times, trucking executives say.

First-quarter earnings reports from some of the nation’s largest carriers back up those executives’ statements.

Knight-Swift, the nation’s largest TL carrier, reported revenue, excluding fuel surcharges, jumped 45 percent year over year in the first quarter, which is usually the slowest period for most trucking companies.

J.B. Hunt, the No. 2 TL carrier which earned $760.8 million net profit last year, enjoyed a 33 percent jump in revenue in the first quarter to $3.49 billion, the company said. Trucking division revenue jumped 77% mostly on increased load volume and higher revenue per load, J.B. Hunt said.

On the LTL side, ArcBest Corp., parent of No. 7 long-haul carrier ABF Freight System, posted first quarter 2022 operating income of $94.9 million and net income was $69.6 million. That compared with operating income of $32.2 million and net income of $23.4 million in the first quarter of 2021.  

Judy McReynolds, ArcBest chairman, president and CEO, called the results “outstanding” in the first quarter, which is traditionally the slowest period for most trucking companies.

Orders for manufactured goods rose 2.2% in April, according to the Commerce Department. Wall Street economists were expecting a 1% increase. Factory orders have been a bright spot during the pandemic and its aftermath. Factory orders have risen in 22 of the past 23 months.

While companies are still reporting robust demand, there are some financial clouds on the horizon. Diesel fuel is at record levels—$5.50, according to the Department of Energy on-highway survey for the week beginning May 2, up $2.37 per gallon over a year ago – though most of that rise is recovered through fuel surcharges.

Driver availability is still scant and expensive. But government programs to funnel more potential drivers to carriers are beginning, though it will be a couple years to see how effective they are.

The overall economy could be slowing. Gross Domestic Product in the first quarter shrunk by 0.4%. The first quarter is usually the slowest period for most trucking companies.

But mostly trucking profitability comes down to demand along two major customer groups – retail and industrial, mostly evenly split about 50-50. Retail demand is spotty but still strong, carriers report. Industrial demand is uneven, depending on the type of industry. Housing raw materials remains fairly strong. But autos – which are about 20 percent of all trucking demand – are still stuck in low gear because of a shortage of computer chips and other key components.

Bottom line: don’t write off trucking. Demand may be trailing off slightly but that largely depends on industry segment and sometimes by individual customers. But trucking executives say, unlike the stock market, it is hardly a bear market.