Truckers See Momentum Slowing Heading Into 2019
Carriers can’t count on booming demand this year, and some suggest the freight parade is nearing an end
Trucking companies face an uphill climb in 2019 as a freight boom that delivered record profit for carriers over the past year begins to soften.
Fleets extracted double-digit rate increases from shippers last year, as demand surged on strong economic growth forcing retailers, manufacturers and other companies to scramble to book transportation in tight shipping networks.
Such gains may be hard to match in coming months amid slowing industrial growth, wavering consumer confidence and ongoing trade tensions. Trucking companies that expanded capacity in 2018 with an unprecedented run-up of new equipment orders will have less leverage to raise shipping prices if freight demand falls, as some analysts predict.
“We see more evidence pointing to a potential freight recession in 2019 similar to 2015/16,” Morgan Stanley analysts Ravi Shanker and Diane Huang wrote in a Jan. 16 research note. “With net inventory levels reaching another all-time high and ordering levels falling, the risk of a destocking event in 2019 is high.”
Those challenges loom as trucking companies close the books on 2018 by releasing results that include the fourth-quarter shipping season.
J.B. Hunt Transport Services Inc., one of the largest carriers in North America and a bellwether for the sector, on Thursday reported solid fourth-quarter results that lifted trucking stocks.
The Lowell, Ark.,-based company reported $2.32 billion in revenue for the quarter, a 16% year-over-year increase. J.B. Hunt’s net profit also rose, adjusting for factors including a $134 million pretax charge on claims from an arbitration agreement with BNSF Railway, its partner in the intermodal business of moving freight long distances by truck and rail.
“I wouldn’t go so far as to say it was a great quarter, but a good one nonetheless,” J.B. Hunt Chief Financial Officer David Mee said in a call with investors.
Gains in the company’s intermodal segment were partly offset by the arbitration charge and a slowdown in demand from the third quarter. Operating income from trucking rose as the carrier added more customers for its dedicated-fleet segment and logged an 18% jump in truckload revenue per loaded mile, a key measure of pricing strength.
Knight-Swift Transportation Holdings Inc., the largest U.S. truckload carrier, is also expected to post strong fourth-quarter results when it reports later this month. Last week, Knight-Swift boosted its fourth-quarter profit guidance and increased its outlook for the first quarter of 2019, citing operating improvements at its Swift trucking business.
Both Knight and J.B. Hunt may be outliers compared with the overall trucking sector, especially as fleets move into 2019.
Demand appeared to be tailing off late in the year. An index of U.S. domestic freight volumes slipped 0.8% last month compared with December 2017, the annual decline in two years, according to Cass Information Systems Inc.,which processes freight bills.
Trucking rates on the spot market, where shippers book last-minute transportation, also fell in December for the first time in several years, according to online freight marketplace DAT Solutions LLC. The average price to hire the most common type of big rig dipped to $2.07 per mile, a penny lower than the prior month and 5 cents below the level in December 2017.
The first quarter is typically a slower period for freight, although factory production ticked up at the end of last year, suggesting consumer demand could make up for a pullback in exports.
But analysts say trucking companies could face an even steeper drop-off in shipping demand this year because some manufacturers and retailers pulled imports forward in 2018 to avoid tariffs expected to take effect around March.
The impact “will likely be seen most in February after the impacts of an earlier Chinese new year leave the market somewhat naked to difficult [year-over-year] comparisons,” Cowen & Co. transportation analyst Jason Seidl wrote in a Jan. 14 research note. Factor in falling spot rates, and “the data would suggest that much of the spot pricing gains from mid-2018 that strongly benefited carriers could be erased in 1H19, with the advantage in contract negotiations reverting back toward the shippers.”
By Jennifer Smith - WSJ - The Wall Street Journal