Truckers Wrestle With Oversupply of Big Rigs, Falling Freight Rates

Trucking companies are wrestling with the hangover from last year's freight boom as greater availability of big rigs and softening demand weigh on earnings ahead of peak shipping season.

Many carriers plowed 2018 profits and the gains from the 2017 corporate tax cut into record orders for new equipment, resulting in a growing supply of trucks while cargo volumes in U.S. distribution channels have been sliding.

Bad weather, tepid industrial growth and trade tensions have contributed to sagging business, freight executives say. Companies that pulled imports forward late last year ahead of anticipated tariffs are working through excess inventory piled up in warehouses, and cool temperatures put a damper on spring shipments of produce, beverages and patio furniture.

"We're three months into a freight recession," said Jack Atkins, a transportation analyst with Stephens Inc.

It is a sharp reversal from last year, when surging freight volumes and tight truck capacity had retailers and manufacturers scrambling to book transportation. Some companies pointed to soaring shipping costs as the reason for depressed earnings as carriers extracted double-digit rate increases.

Now shippers have the upper hand. The results have been especially dramatic on the spot market, where companies book last-minute transportation and prices are more volatile than the contract rates truckers negotiate with customers.

The average spot market price to hire a big rig was off 18.5% in June from the same month a year ago, to $1.89 per mile, according to online freight marketplace DAT Solutions LLC. Last month on DAT's platform there were about three loads for every available truck, compared with six loads per truck in June 2018.

"The industry bought a lot more trucks than we realized that they did," Doug Waggoner, chief executive of freight broker Echo Global Logistics Inc., said in a July 24 earnings call. "Relative to last year at this time, there is less demand for capacity and that, coupled with an oversupply of trucks, means there's little to no spot freight and all truckload prices have come down dramatically."

This month Knight-Swift Transportation Holdings Inc. (KNX), the largest truckload carrier in North America, cut its profit outlook for the second and third quarters, saying "the oversupply of capacity in the truckload freight market" was weighing down revenue per loaded mile, a key measure of pricing strength.

Phoenix-based Knight logged $1.24 billion in second-quarter revenue, down 6.7% from the same quarter a year ago, while adjusted operating income rose 1.5% to $137 million, excluding factors including a legal accrual tied to an ongoing lawsuit.

Lowell, Ark.-based J.B. Hunt Transport Services Inc. (JBHT), one of the largest U.S. freight operators, said its revenue rose 6% to $2.26 billion, although operating income slid 10% on higher costs, falling short of analyst estimates.

Other big truckers cited headwinds from slowing demand in second-quarter reports. Werner Enterprises Inc. (WERN) said its second-quarter revenue grew by 1%, to $627.5 million, but the Omaha, Neb.-based carrier lowered its 2019 outlook for one-way truckload pricing, saying it expected rates to be flat to down 3%.

Carrier executives say they expect capacity to tighten up in coming months, pointing to growing cancellations of truck orders and a spate of bankruptcies among smaller regional carriers.

But manufacturers are still working through lengthy order backlogs and fleets continue taking delivery of new trucks, said Kenny Vieth, president of transportation industry data provider ACT Research, which tracks orders of equipment including Class 8 trucks, the big rigs used to haul freight over long distances.

"Freight as we measure it is growing at less than 1% in 2019," Mr. Vieth said. "Our modeling suggests that we are adding about 7% to the U.S. Class-8 market capacity.... So the supply-demand equilibrium is tilting away from truckers right now."

Write to Jennifer Smith at jennifer.smith@wsj.com


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  07-28-19 0714ET
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