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Knight-Swift’s Miller cites rapid TL market tightening
Carrier points to stronger contract bids and higher tender rejection rates
Key Takeaways:
- Knight-Swift reported stronger second-quarter results as supply-driven truckload market tightening lifted pricing, utilization and profitability, executives told investors July 22.
- Net income rose 26.1% to $43.2 million and revenue increased 12.6% to $2.1 billion as tightening capacity boosted rates and margins.
- Executives expect market tightening to continue and said a recent Supreme Court broker-liability ruling could further reduce carrier capacity and create opportunities.
Knight-Swift Transportation Holdings reported that supply-driven tightening in the truckload market contributed to stronger second-quarter results.
The freight market has been rapidly tightening this year, with increased federal enforcement actions accelerating an existing decline in capacity. The market has struggled to recover in recent years after the previous freight-cycle peak drew in a surplus of drivers. When demand later weakened, the industry was left with excess capacity.
“The truckload freight market has rapidly progressed over the past few months, with spot rates trending well ahead of normal seasonality,” Knight-Swift CEO Adam Miller said during a call with investors July 22. “This has continued to be largely supply-driven, though signs of improving demand are starting to emerge.”
Miller said contractual bid activity is becoming increasingly supportive while tender rejection rates have climbed to levels not seen since 2021. He added that Knight-Swift is well positioned for a tightening market because of its scale, pricing flexibility, cross-brand collaboration and driver-training programs.
“Further, we believe demand for our truckload service offering is outpacing the market, as evidenced by our tender rejection rates running roughly twice the level of public indications,” Miller said. Revenue per mile began recovering in the quarter as contract-rate gains reflected bids priced earlier in the year, he added.
RELATED: Knight-Swift posts Q1 net loss as market conditions improve
TD Cowen noted in a report that it expects cycle tailwinds to build into the second half of the year. Higher over-the-road utilization and pricing helped margins improve as truckload conditions strengthened, the firm said. These tailwinds should intensify in the second half on volume and mini-bid pricing opportunities, TD Cowen said.
Jason Seidl, managing director at TD Cowen, said truckload revenue growth matched TD Cowen’s expectations as Knight-Swift moved through the early stages of a recovery.
“A tighter market enabled KNX to drive utilization as contract increases gradually work through the book,” Seidl said.
The report said supply dynamics remain the primary driver of the recovery, though stronger demand could provide additional upside. It also expects driver pay to increase, though less sharply than during the previous cycle.
Knight-Swift also used the investor call to address the decision in Montgomery v. Caribe Transport II. The U.S. Supreme Court ruled that freight brokers are not protected by federal law from state lawsuits over negligent-hiring claims. It overturned a widely accepted interpretation in many states, shifting more responsibility onto brokers. Miller expects the decision to tighten the market as marginal carriers get squeezed out.
Miller said the ruling should not increase costs for Knight-Swift’s asset-based operations and could create future business opportunities.
He is already seeing the decision impact insurance markets, including a significant reduction in capacity. He noted insurers are also seeking to introduce exclusions regarding carrier-vetting practices into their policies.
Miller said customers generally remain optimistic and continue discussing peak-season demand support.
“With the tightening in market conditions, recruiting and retaining quality drivers have become more challenging,” he said.
Knight-Swift reported that net income attributable to itself increased 26.1% to $43.2 million from $34.2 million. Revenue increased 12.6% to $2.1 billion from $1.86 billion. The consolidated operating ratio improved 110 basis points from the prior year to 95. Andrew Hess, chief financial officer at Knight-Swift, noted earnings improved primarily because of pricing and network-efficiency gains across the asset-based businesses.
“Our truckload segment grew revenue, excluding fuel surcharge, by 2.8%,” Hess said. “Rate improvements accelerated in June as more recent bids started taking effect, with truckload revenue per loaded mile, excluding fuel surcharge, increasing 8.4%.”
Results by segment
- Truckload segment revenue increased 2.8% to $1.1 billion from $1.07 billion. Operating income surged 96.3% to $89.1 million from $45.4 million.
- Less-than-truckload segment revenue decreased 1.4% to $333 million from $337.7 million. Operating income rose 18.1% to $21.7 million from $18.4 million.
- Intermodal segment revenue jumped 34.9% to $113.4 million from $84.1 million. Operating income returned to profitability at $653,000 from an operating loss of $3.4 million.
- Logistics segment revenue increased 8.9% to $139.7 million from $128.3 million. Operating income fell 31% to $3.83 million from $5.55 million.
Knight-Swift ranks No. 8 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. The company also ranks No. 31 on the logistics TT100.
