Covenant CEO sees ‘pain before the gain’ as trucking capacity tightens

“I think you’re going to see insurance companies that are not going to insure non-domiciled CDL license holders,” Parker said. “California is leading it … capacity is leaving the market.”

Related:  Covenant Logistics Q3 profit slips on truckload weakness

The company’s truckload segment reported operating income of $9.2 million, down sharply from $23.1 million a year earlier, as rising insurance, wages, and maintenance costs weighed on margins. 

Covenant’s freight revenue per total mile in the third quarter increased 5% year-over-year, but lower utilization drove a decline in overall efficiency. The expedited segment saw freight revenue fall 9% year-over-year to $80.2 million, while dedicated operations grew 11% year-over-year to $91.6 million, supported by new contracts in the protein supply chain.

Parker added that Covenant is “seeing compression on margins” in its brokerage division as enforcement actions and equipment under-utilization ripple through the industry, but said those pressures “should help asset carriers more” as rates eventually rise.

Covenant is holding off on new truck purchases amid uncertainty over tariffs on imported heavy-duty trucks and components, calling current OEM order boards “very slack.”

“Our fleet is very, very healthy,” Parker said. “Our balance sheet remains very, very healthy, and we’re going to buy some equipment. It’s hard to commit to a number when you don’t have pricing on it.”

Looking ahead to the American Trucking Associations’ annual conference next week in San Diego, Parker said that carrier sentiment could echo his cautious optimism.

“I think you’ve got motor carriers that are happy with what the government is doing, and I think that that’s going to be the tone at ATA conference,” he said. “Inflation has been bad for 36 to 42 months, and regulation on trucks has been intense — but it’s going to be pain before the gain.”