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Trucking CEOs expect high prices, demand in second half of 2022

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U.S. trucking CEOs expect to keep up pricing power even with volumes softening within the second half of 2022 as retailers, manufacturers and consumers adjust to disruptions from Covid lockdowns, the Russia-Ukraine war and inflation.

A recent survey of consumers by SAIA, a trucker for Starbucks, Home Depot and Lowe’s, found the vast majority of firms are still working to determine their next step and what the “latest normal” is for his or her business, in response to CEO Fritz Holzgrefe.

“They were talking loads about continuing to rebuild inventory positions, straightening out their supply chains through the balance of the yr, even into the primary a part of next yr,” Holzgrefe told CNBC. “Possibly things have slowed a bit, but customers are still continuing to re-sort their supply chain position to more effectively to attain their goals of their respective businesses.”

Trucks at the doorway to the Port of Oakland in Oakland, California, US, on Thursday, July 14, 2022. Truckers servicing a number of the US’s busiest ports are staging protests as state-level labor rules that change their employment status begin to enter effect, creating one other choke point in stressed US supply chains.

David Paul Morris | Bloomberg | Getty Images

The availability chain is improving and past the worst, in response to Derek Leathers, CEO of Werner Enterprise, which moves freight for Walmart and Goal. But, he warned, headwinds for truckers will keep rates well above prepandemic levels for the remaining of 2022.

“You will see rates delay for the rest of the yr. Our cost increases are real. Our customers understand that,” Leathers said. “We’re talking large scale successful winning brands like [Amazon and Walmart] and plenty of others that know the reliance on their carrier is a competitive advantage. They need good quality transportation, on time, each time safely. To try this they work with large well capitalized carriers.” 

Trucking stocks have been a few of the very best performers in July, while the S&P 500 has gained greater than 7% this month. SAIA and ArcBest are up over 20%, while Werner Enterprises, Knight Swift and JB Hunt have increased over 10%.

Earlier this yr there have been concerns a few “freight recession” due to falling rates within the so-called spot marketplace for trucking. In response to probably the most recent data from Evercore ISI, those rates are down greater than 11% yr over yr. The spot market provides on-demand freight transportation, and pricing varies based on supply and demand.

Spot trucking saw a boom at the peak of the pandemic as firms adjusted to snarled supply chains and were willing to pay historic rates to move goods through the e-commerce boom. Nonetheless, the vast majority of trucking continues to be done through contracts with carriers and their customers like large retailers.

The leading firms within the three major segments of trucking make the vast majority of revenue from contracts — Knight Swift (full truckload), FedEx (lower than truckload) and JB Hunt (container shipping) — have reported double-digit rate increases of their most up-to-date earnings.

“We imagine the contract rates will delay. We imagine contract rates are going to be at a spot that’s going to permit trucking firms to be remarkably profitable.” Deustche Bank transportation analyst Amit Mehrotra told CNBC.

He also expects demand to be barely lower but stable for the remaining of 2022. “I feel the inventory issues that major retailers like Goal are reporting is more of a mirrored image of fixing buying patterns, slightly than a big withdrawal of consumer spending,” Mehrotra said.

The chief executive of one in all the most important trucking brokerages in the US can be watching consumer spending.

“Clearly the trucking market is different today than it was 12 months ago,” CH Robinson CEO Bob Biesterfield told CNBC’s “Squawk on the Street” on Tuesday.

He added that retail, housing and manufacturing are key drivers of trucking volumes. Manufacturing has held up the very best of those three, he added. Retail saw volume increase in the primary quarter and a decline in a second, Biesterfield said.

The end result of the West Coast port labor negotiations is one other big query mark for the trucking industry.

The contract between union staff and the ports that handle roughly 45% of U.S. imports expired July 1, but work has continued during ongoing negotiations. The 2 sides announced a tentative agreement on health-care advantages as they proceed to work on a deal over compensation, automation and other points. There have been stoppages, slowdowns or disruptions through the last three negotiations — in 2002, 2008 and 2014 — before a deal was reached, in response to the U.S. Chamber of Commerce.

Holzgrefe, the SAIA CEO, said the specter of disruption is already resulting in shifts in the availability chain.

“What we have seen is our customers other ports or have redirected other parts of the country.” Holzgrefe said. “To the extent that the Port of L.A. becomes an issue again, we feel like we are able to adjust as our customers have to. It’ll just be dearer to operate efficiently.”

“The L.A.-Long Beach negotiations may very well be a disruptive moment.” said Leathers, the Werner Enterprise CEO. “There may be pent up demand in China that also has to maneuver in the event that they come out of Covid lockdown, and that might create some congestion and a few disruption. There’s still a yet to be seen effect on the patron with ongoing impact of inflation.”

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