This story appears in the Feb. 20 print edition of Transport Topics.
KEY BISCAYNE, Fla. — Truckload carriers struck an optimistic tone that a turnaround in the freight industry will occur in the second half of this year.
Company executives attending the 2017 Stifel Transportation & Logistics Conference here acknowledged that first-quarter earnings likely will be worse than a year ago, but a transition would occur in the second or third quarter as tighter capacity and higher rates translate into better results.
“The first quarter of last year was before the rate decline really set in across carriers in the industry, so the [comparison] will be a difficult one to overcome in the current quarter,” Werner CEO Derek Leathers said. “As you get into the second quarter, those early-2017 contract renewals take effect, and you start to get into easier [year-over-year comparisons] in the second quarter and beyond. I think that’s really your inflection point.”
He also said the rhetoric around contract renegotiations isn’t as negative as it was a year ago because shippers understand that a 30% average decline in truckload earnings is unsustainable.
In January, two executives of private trucking companies provided a different picture of the contract renegotiation process on a conference call with investment bank Cowen & Co.
“Anyone who is thinking about, or asking for, a 5% reduction this year has lost their minds,” said Bo Keith, president of FirstExpress in Nashville, Tennessee. “We’re not giving you a 5% reduction, so there’s no sense in wasting my time.”
Joseph Cowan, chairman and CEO of Cowan Systems, told listeners in January that shippers hadn’t shown the flexibility necessary to pay him what he needed to haul freight. Cowan ranks No. 62 on the for-hire TT100.
“The bid information that we did in the fourth quarter was not very fruitful for us. Some people are quoting some rates that really shocked me,” he said in the January call.
Knight Transportation Inc., No. 29 on the for-hire TT100, agreed with Werner Enterprises that rates are lower this quarter on a year-over-year basis, but would become flat in the second quarter and higher in the third and fourth quarters. Knight CEO Dave Jackson classified the first month of 2017 as “not robust.”
“We think in this bid season there might be a percent or so more to gain [on rates versus 2016],” he said. “We’ll see the typical seasonal tightening in the second quarter with produce and beverages. It could get lonely in August, but as we move towards Labor Day, we expect to see the first stress tests as to 2017 truckload capacity.”
Heartland Express Inc., No. 41 on the for-hire TT100, expects year-over-year net income improvements to begin in the fourth quarter.
“It’s setting up well for all truckload carriers for the next two or three years, but no one knows for sure in the midterm when exactly things will change,” Heartland CEO Michael Gerdin told TT after his presentation.
David Parker, chairman and CEO at Covenant Transportation Group, agreed that the late third or early fourth quarter is when the turnaround will start and that the next few years will be “extremely good.” Covenant ranks No. 43 on the for-hire TT100.
“Peak season will be unbelievable this year,” he said. “I also think we’re going to have a better economy over the next two, three or four years than we’ve had over the past two, three or four years.”
Marten Transport Ltd. President Timothy Kohl said his company doesn’t discuss the electronic logging mandate with customers because “there’s going to be no capacity in this industry by the end of this year, anyways.” The refrigerated van carrier ranks No. 47 on the for-hire TT100.
“We think we’ll start to see an inflection point during the holiday season, similar to 2014. But nobody has a crystal ball to know when exactly it’s going to happen. It’s the $64,000 question,” Kohl said. “But you saw the double-digit rate increases on the spot market at the tail end of 2016, so the shipping community caught a glimpse of what’s going to happen on the contract side going forward.”