Cowen analyst sees rougher road ahead for trucking

LTL carriers, which operate in a more concentrated market than the extremely fragmented truckload sector, have passed through significant general rate increases in recent years. Seidl said that LTL rates will continue to rise in 2023. However, the pace of those increases will be relatively muted.

High inflation is having an impact on discretionary spending, industrial activity and, by extension, truckers’ operating costs, Seidl said. Rising costs of equipment, combined with higher interest rates, have been a headwind for drivers. But even drivers who’ve paid off their trucks are struggling under the weight of slowing volumes and inflation in other parts of their business.

The swift rise in short-term interest rates — the Federal Reserve’s Federal Open Market Committee is expected to announce another significant hike Wednesday afternoon — is changing the mergers and acquisitions dynamic in favor of buyers, according to Seidl, who said the fourth quarter, typically a period of frequent M&A activity, could see lower asking prices as sellers feel uneasy about the impact of higher borrowing costs.

“Sellers are nervous about where the market is going,” Seidl said. As a result, they are beginning to reset their selling prices at lower levels.

Seidl’s concerns about trucking’s near- to intermediate-term outlook were echoed by Noel Perry, a longtime transportation economist. Perry, whose remarks at CSCMP preceded Seidl’s, said that the spot market is “back to normal” after a frenetic 2021 during which spot prices skyrocketed. However, the “slide back to calm waters” will feel worse than people anticipate.

One reason is that the buying of transport services by goods-producing industries, those businesses that dominate the transport expenditure landscape, appears to have peaked, Perry said, citing a proprietary measure known as the “overbuy/underbuy” index.