U.S. Trucking Firms Anticipate Freight Downturn to Reverse After Challenging Quarter

By Priyamvada C

The U.S. trucking industry may experience a rise in freight demand in the latter half of the year after facing another quarter of reduced profits due to a decline in package volumes, according to insights from company leaders and analysts.

This anticipation is driven by comments from U.S. retailers regarding their improving inventory levels and the expectation of better inbound container shipments. Retailers, including Target and Macy’s, have indicated that they have largely resolved their previous inventory overstock issues, as they prepare to restock popular items ahead of the critical holiday season.

Additionally, a decrease in the volume of large containers processed by U.S. ports compared to last year is expected to lessen in the coming months. This development is noted by the National Retail Federation, suggesting that retailers are gearing up for a surge in demand during the year-end holidays.

"Most of our retail customers have worked through that inventory… so it does look like the freight markets have hit a low point from a demand standpoint," stated Mario Harik, Chief Executive Officer of logistics firm XPO, while expressing optimism that freight markets could begin to recover in 2024. XPO noted a positive shift in shipment counts and tonnage in July, indicating the start of a gradual improvement in freight demand.

Adam Satterfield, Chief Financial Officer of Old Dominion Freight Line, echoed similar sentiments in a recent earnings call, highlighting a normalization in inventory levels.

Last year’s freight demand faced a sharp decline after a surge during the pandemic that shifted consumer behavior toward online shopping. As customers returned to physical stores and inflation pressured household budgets, retailers sought to prevent inventory accumulation, impacting the trucking and rail industries.

"I don’t believe we’ve ever witnessed freight demand plummet this rapidly and for such an extended period without a corresponding economic recession," remarked David Jackson, Chief Executive Officer of Knight-Swift Transportation, during an analyst call following the earnings report.

Consequently, adjusted net income for trucking companies such as JB Hunt, Old Dominion, CH Robinson, and XPO fell between 22% and 69% in the second quarter compared to the previous year. Analysts have characterized this quarter as particularly tough for trucking firms, citing high wage costs and extremely low spot rates.

However, there is optimism on the horizon. Tim Denoyer of ACT Research pointed out that while the industry is still in a challenging phase, growth is anticipated as the new year approaches. Knight-Swift’s analysis suggests that an upturn in demand alongside normalizing import volumes and a reduction in supply could result in improved conditions for the freight market soon.

While some areas still exhibit high retail inventories, Denoyer suggested that various categories will increasingly require restocking over time. Moreover, the recent collapse of Yellow Corp, the third-largest trucking company in the U.S., may contribute to bolstering rates for competitors such as XPO, FedEx Freight, and Old Dominion.