Freight CEOs expect high prices and demand in the second half of 2022

Trucks at the entrance to the Port of Oakland in Oakland, California, U.S., on Thursday, July 14, 2022. Truckers serving some of the busiest U.S. ports are holding protests as State-level labor rules that changed their employment status began to take effect, creating another choke point in the strained U.S. supply chain.

David Paul Morris | Bloomberg | beautiful pictures

US trucking CEOs expect to maintain pricing power even as volumes decline in the second half of 2022 as retailers, manufacturers and consumers adapt to disruptions caused by lockdowns Covid, the Russian-Ukrainian war and inflation.

According to CEO Fritz Holzgrefe, a recent survey of customers by SAIA, a trucking company for Starbucks, Home Depot and Lowe’s, shows that the majority of companies are still working to figure out the next step and What is the “new normal” for their business.

“They talked a lot about continuing to rebuild inventory positions, straightening their supply chains through the balance of the year, even early next year,” Holzgrefe told CNBC. “Things may have slowed down a bit, but customers are continuing to reposition their supply chains to be more efficient in achieving their respective business goals.”

According to Derek Leathers, CEO of Werner Enterprise, which ships goods for Amazon, Walmart and Target, the supply chain is improving and past the worst. However, he warned, difficulties for truckers will keep prices above pre-pandemic levels for the rest of 2022.

“You’ll see the rate stay the same for the rest of the year. Our cost increases are real. Our customers understand that,” Leathers said. “We’re talking about big-scale winners like [Amazon and Walmart] and many others know that their reliance on service providers is a competitive advantage. They want good quality, on time, safe shipping. To do that, they work with large-cap service providers. ”

Freight stocks were among the best performers in July, while the S&P 500 index has gained more than 7% this month. SAIA and ArcBest increased by more than 20%, while Werner Enterprise, Knight Swift and JB Hunt has increased by more than 10%.

Earlier this year there were concerns of a “cargo recession” due to falling freight rates in the spot market for trucking. According to the most recent data from Evercore ISI, these rates are down more than 11% year over year. The spot market offers on-demand freight services, and prices vary according to supply and demand.

Spot trucking has seen a boom at the height of the pandemic as companies adjust to tough supply chains and are willing to pay historic prices to ship cargo during boom times. ecommerce. However, the majority of trucking is still done through contracts with carriers and their customers such as major retailers.

The leading players in the three main segments of trucking generate most of their revenue from contracts – Knight Swift (full load), FedEx (less than trucks) and JB Hunt (shipping containers) – reported double-digit gains in their most recent earnings.

“We believe contract prices will hold. We believe contract prices will be at a level that allows trucking companies to make substantial profits.” Deustche Bank transportation analyst Amit Mehrotra told CNBC.

He also expects demand to be a bit lower but steady for the rest of 2022. “I think the inventory issues that big retailers like Walmart and Target are reporting are more reflective of the lack of inventory. changing buying patterns, rather than a significant drawdown of consumer spending,” said Mehrotra.

The CEO of one of the largest trucking brokerages in the United States is also tracking consumer spending.

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

He added that retail, housing and manufacturing are the main drivers of trucking volumes. He added: “Manufacturing has taken hold of the best of those three technologies. Biesterfield said retail volumes increased in the first quarter and decreased in the second quarter.

The outcome of the labor negotiations at the West Coast port is another big question mark for the trucking industry.

The contract between union workers and ports that handle about 45 percent of U.S. imports expired on July 1, but work continues during ongoing negotiations. The two sides announced a tentative agreement on healthcare benefits as they continue to work on an agreement on compensation, automation and other points. There have been delays, delays or disruptions in the last three negotiations – in 2002, 2008 and 2014 – before an agreement is reached, according to the American Chamber of Commerce.

Holzgrefe, SAIA CEO, said the threat of disruption has led to a shift in the supply chain.

“What we’ve seen is our customers have other ports or have diverted to other parts of the country.” Holzgrefe said. “To the extent the Port of LA becomes an issue again, we feel we can tailor it to the needs of our customers. It will only cost more to operate efficiently.”

“The LA-Long Beach negotiations could be a moment of disruption.” Leathers, CEO of Werner Enterprise said. “There’s a pent-up demand in China that still has to move if they come out of the Covid lockdown, and that could create some congestion and some disruption. The impact on people has not been seen yet. consumption with the continuing effect of inflation.”

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