Trucking Industry Grapples With Q4 Slowdown
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Motor carriers experienced a financial slowdown in the final months of 2022, as trends that indicate a return to normalized levels of business for the year ahead took hold, industry analysts said.
“The Q4 results in general weren’t great,” Evercore ISI analyst Jonathan Chappell said.
“Old Dominion [did] a phenomenal job, and Schneider [did] much better than expected. But everyone else was basically in line to worse than expected, for all the reasons that we anticipated coming in — slower volumes, pricing decelerating, etc.”
Chappell noted that carriers expressed optimism for the coming year, as they are anticipating a bottoming of volumes early on, normalization of inventories in the second quarter and a bottoming in pricing midway through the year.
“A lot of optimism about a return to normalcy, and that was the thesis that most investors hung onto,” Chappell said. “It didn’t really matter if you had a great Q4 or a terrible Q4, you were kind of thrown into this bucket of, ‘Things are about to stop getting worse and at least bottom before they start getting better.’ ”
Cowen and Co. analyst Jason Seidl noted that Q4 truckload rates dropped amid easing supply chain congestion and predicts that rates may decline further in the first quarter as carrier bargaining power erodes. He also expects less-than-truckload rates to gradually abate.
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“The fourth quarter went about as expected in terms of the commentary that was coming out of both the LTL and the truckload players,” Seidl said. “The outlook remains challenging, but I think — as a group — the truckers were more optimistic on seeing a rebound as early as spring and as late as the back half of the year.”
Seidl noted that some of the Q4 downturn was tied to consumer-related companies that experienced an inventory drawdown, but added carriers are already seeing some of those customers build back inventory.
“If you look on a year-over-year basis, fourth quarter tends to have a lot of what you call pop-up business — especially around the consumer retail side. You just didn’t get a lot of that this year,” Seidl said.
Costs also were a factor, he noted. “You saw a lot of inflationary costs that were rising and I think that caught up to a bunch of the carriers,” Seidl said.
Chappell noted that these and other market variations during the past few years created an unsettled environment that may finally be easing.
“I think this is the first step toward returning to some semblance of a normal cycle,” he said. “The disruption was so immense over the last couple of years that we can’t just snap our fingers and go back to a normal cycle.”
Seidl sees that happening in a few months.
“I’d like to think that we’re going to start seeing a more normalized — let’s say, spring season,” Seidl said. “I think that’ll help out a little bit. I think we can see a more normalized peak as we roll into peak season in the latter half of the year.” He noted that the usual peak season occurred earlier in 2022, as shippers worked to get inventories set up early to offset the potential delays that beset the 2021 holiday shipping season. This surge affected Q4 2022 demand.
Uber Freight in a first-quarter market update and outlook issued Feb. 9 said that truckload supply outpaced demand in Q4. The report noted retail sales, manufacturing output and imports all decreased during the quarter.
“When you look at both the supply and demand angles, everything was pointing to more softening in the industry,” Mazen Danaf, senior economist at Uber Freight, said. “We look at the demand side first, whether it’s the consumer side, the housing side and the manufacturing side. Everything was starting to either soften or stagnate in Q4.”
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