Werner CEO optimistic over ‘shadow capacity’ crackdowns

Leathers said rising fuel, insurance and equipment replacement costs will likely force additional capacity from the market. (Werner Enterprises)

Werner Enterprises CEO Derek Leathers expressed cautious optimism July 28 that the ongoing federal crackdown on capacity plays into the strengths of his company.

The Department of Transportation hastened an ongoing decline in capacity last year by tightening enforcement of non-domiciled commercial driver licenses and English-language proficiency standards. Those efforts accelerated carrier exits from a market already working through an oversupply of trucks.

“The structural capacity attrition we’ve been talking about for several quarters is playing out as predicted,” Leathers said during a call with investors. “This tightness is being driven by intensifying regulatory pressure.”

Leathers also pointed to a mass exodus of electronic logging device providers, which he believes has accelerated capacity attrition by squeezing out additional “shadow capacity.” He cited brokers losing their presumed protections from being sued under state law for negligently hiring a carrier in Montgomery v. Caribe Transport II.

“Increased enforcement, along with the recent Montgomery verdict, has resulted in shippers and brokers taking an even more cautious view of who they do business with,” Leathers said. “That plays directly into Werner’s strengths, given our strong track record and reputation, and validates our strategic direction.”

Leathers said rising fuel, insurance and equipment replacement costs will likely force additional capacity from the market. Combined with continued carrier attrition, higher tender rejection rates and seasonal freight demand, he expects freight rates to continue rising through the remainder of 2026.

“The reality is that carrier exits are still in the early innings,” Leathers said. “Enforcement efforts are continuing. In our view, greater agency collaboration and exchange of data, combined with utilization of technology, will further accelerate enforcement from here.”

He said pressure on lower-income consumers continues to drive shoppers toward discount and value-focused retailers. He argued that trend benefits Werner because of its exposure to discount retail, grocery and other non-discretionary freight. He added that lean retail inventories could support stronger freight demand as the market recovery progresses.

“We’re going to continue to be a highly compliant carrier and do everything in our power to lower accident rates, even after having just posted a really strong first half of the year,” Leathers said. “There’s still going to be significantly more capacity removed from the road between now and the end of the year. Frankly, it’ll probably take into the early parts of next year.”

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Leathers made the remarks while discussing Werner’s second-quarter financial results. The Omaha, Neb.-based freight carrier and logistics company posted net income attributable to itself of $6.35 million, or 11 cents per diluted share, for the three months ending June 30. That compared with $44.1 million, 72 cents, during the same time the previous year. Total revenue increased 24% to $933.9 million from $753.2 million.

Leathers said he is increasingly concerned about the outlook for small brokers and carriers as compliance and legal risks grow.

“Small brokers, I’m not sure how they survive the onslaught of this kind of world that we’re in today,” Leathers said. “I worry about the backbone of the industry, honestly, which is the one-truck, two-truck, five-truck carrier. I’m not sure how we, over time, continue to try to vet and utilize what is some of the strongest capacity out there in terms of quality.”

Leathers also noted that safety metrics and insurance costs trended favorably for a second consecutive quarter due to technology and driver onboarding. But he also warned that insurers face significant pressure when covering carriers against large lawsuits. The concern is that these nuclear verdicts have a new opening in the aftermath of Montgomery.

Jason Seidl, managing director at TD Cowen, said Werner’s view aligns with his firm’s long-standing expectation that larger asset-based carriers stand to benefit as legal and compliance pressures mount on smaller carriers and brokers.

“WERN believes safe, asset-based carriers with scale are best positioned (a sentiment we have echoed in past research notes) and smaller carriers/brokers will be the most affected. This should put another lid on new capacity,” Seidl wrote in a report.

Results by segment

• Truckload Transportation Services segment revenue increased 36% to $702.6 million from $517.7 million. But operating income fell 58% to $27.1 million from $64.1 million.
• Logistics segment revenue declined 4% to $211.7 million from $221.2 million. Operating loss was $3.87 million, compared with a gain of $4.33 million.

Werner ranks No. 19 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 30 on the TT Top 100 list of the largest logistics companies.