A few truckload carriers said the underside of the cycle has likely occurred but acknowledged that any material positive inflection in fundamentals won’t occur until sometime in 2024. That likely means a “muted peak season” again this yr.
“I believe there will probably be some signs of seasonal activity across September, October, November,” Schneider National (NYSE: SNDR) CFO Steve Bruffett said at a Morgan Stanley (NYSE: MS) investor conference Tuesday in Dana Point, California.
“I believe that sets us up for a more constructive begin to 2024. I wouldn’t call it robust but I’d call it a more balanced and more in equilibrium kind of setup than what’s been in place entering any of the last … 4 years.”
He said after months of a really flat freight environment marked by customers rightsizing inventories, there may be some merchandise restocking occurring currently. Bruffett noted demand improvement through the back-to-school shopping season and said Halloween-related goods are doing just a little higher than expected. Neither category, nevertheless, is anticipated to make much of an impact on the carrier’s results.
Schneider lowered 2023 earnings guidance when it reported second-quarter leads to early August. It expects the third quarter to be the low point of the cycle from an earnings perspective as the total impact of contractual bid season is represented across its entire customer book.
Management from Werner Enterprises (NASDAQ: WERN) echoed an analogous outlook on the event. Derek Leathers, the corporate’s chairman and CEO, said the “overcapacity marketplace coupled with overstocked inventories” has passed.
Werner’s biggest customers, which include discount stores that specialise in household essentials, are in a very good position with their stock levels, Leathers noted. He expects restocking to occur during peak season but said customers are more likely to be a bit more conservative this yr to avoid the demand miscalculations that resulted in stuffed warehouses last yr.
Along those lines, Werner’s biggest customer, Dollar General (NYSE: DG), recently said it might implement promotional markdowns to rightsize inventories. The actions are expected to equate to a $95 million hit to operating income within the back half of the yr.
“We’re fairly optimistic as we glance forward but we’re definitely still in a day-to-day fight,” Leathers said.
Werner is expecting to see some kind of peak this yr however it has a tricky comparison to a yr ago, which benefited from an honest amount of project freight.
“We’re only now starting to actually find some sense of balance out there,” Leathers said. While truckload capability has been leaving in dribs and drabs for a yr now, the exit rate is increasing. “I believe you’re going to begin to see that wash increase from here.”
The change is noticeable with smaller carriers predominantly hauling spot-market freight.
Spot rates have been in decline for greater than a yr, only recently bouncing off a low established in May. The consensus throughout the industry is that smaller fleets have burned through the money positions they built through the freight boom. The group now faces the best rates of interest in twenty years and widespread cost inflation, including diesel prices which can be up 20% since early July.
Bruffett is seeing capability exit as well. He noted a rise in the supply of qualified drivers and said Schneider’s leasing business has seen an uptick in returned equipment. The corporate’s brokerage unit has also seen a decline within the variety of carriers renewing their authorities.
It’s still too early to forecast what might occur on contract rate renewals next yr, but a decline is unlikely, Jim Filter, Schneider’s group president of transportation and logistics, said.
“I don’t think there’s a level below where we’re at at once from a contract rate and our customers — I consider they understand that.”
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