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Large carriers still seeing strong demand midway through Q2

Bank of America investor conference provides midquarter report card

Appearing at Bank of America’s annual transportation conference, management from some of the nation’s biggest fleets said they haven’t seen any changes in customer demand since reporting first-quarter results a few weeks ago. Management teams acknowledged the sharp decline in spot market fundamentals at the event but said some of that has to do with the relative strength in contract rates, which is driving better adherence to routing guides.

Big carriers largely haul freight under contract, and while the spot market searches for a bottom, management teams on hand said they have yet to see any decline in contractual volumes. J.B. Hunt (NASDAQ: JBHT) has actually experienced an increase in published, or contracted, volumes as those rates have increased.

“We’ve had success at really boosting what our published volumes were through bid season,” said Brad Hicks, president of highway services at J.B. Hunt. “The spot market has certainly pulled back to some degree but some of that is because published volumes are up. Once rates got high enough through bid season, carriers are sticking now on published freight, whereas a year and two years ago a tremendous amount of those carriers were falling off chasing that spot volume.”

J.B. Hunt has completed two-thirds of its 2022 contractual negotiations.

Hicks also pointed to some stabilization in the market over the last 10 to 12 days, noting that tender rejections captured on SONAR have somewhat leveled.

Chart: (SONAR: OTRI.USA). Loads tendered under contract are being rejected by carriers only 8% of the time currently. That compares to a rejection rate of nearly 25% a year ago. To learn more about FreightWaves SONAR, click here.

Schneider (NYSE: SNDR) CFO Steve Bruffett echoed the sentiment, noting that its tender volumes haven’t changed since reporting results three weeks ago. He also said demand indications from customers haven’t changed but the path is unlikely to be as easy in 2022.

“As we move forward in time, there’s likely to be some unevenness in both the economic patterns and in the freight patterns,” Bruffett said. “That doesn’t necessarily mean that everything is just going to come grinding to a halt. We remain constructive on how this year is going to play out.”

Schneider is halfway through its truckload and intermodal bid season and rate negotiations have “gone well.” Bruffett did note that the year-over-year comps get more difficult moving forward and that the percentage increases may not be as robust this year. However, he said rate increases are addressing higher costs on multiple fronts and building on the higher rate base established last year.

He believes cost inflation, production constraints at the original equipment manufacturers and drivers going out under their own authority, at a much higher cost profile, will create a new floor for spot rates.

Conference participants also said demand for longer-term contracts and committed capacity remains strong.

J.B. Hunt’s dedicated customers are “pretty optimistic” about future prospects, according to Nick Hobbs, COO and president of contract services. “Does that mean it’s strong and robust? No. They’ve got challenges with certain product they can’t get in but they feel pretty good about what they’re seeing in their stores.”

He noted manufacturing disruptions around components and semiconductors continue to keep some customers from having in-demand items in stock. But near-term expectations are healthy.

“It’s bumpy but they feel good about the next few months,” Hobbs added.

Hicks said when China comes back on line after COVID lockdowns, “there’s some degree of anticipation that as those goods start flowing in, things could tighten back up again in June. We do anticipate that we’re likely to see more strength in shipping demand as we get deeper into the summer.”

Chart: (SONAR: NTIL.USAVCRPM1.USA). The blue-shaded area is the National Truckload Index (linehaul only – NTIL), which is based on an average of booked spot dry van loads from 250,000 lanes and 10,000 daily spot market transactions. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel. The green line represents the seven-day per-mile average rate for dry van contract loads excluding fuel (reported on a 14-day lag).

Unfortunately, no changes in intermodal either

Both companies haven’t seen any material improvement in service in their respective intermodal franchises. J.B. Hunt noted that rail service has actually deteriorated further during the second quarter.

However, service at customer facilities has improved as many locations have been able to add the dockworkers needed to unload trailers and containers faster. Although, J.B. Hunt said any pickup in utilization at customer facilities has been lost to worsening rail service.

Bruffett is hopeful for some relief at the ports, rail ramps and customer locations as the summer progresses.

J.B. Hunt and Schneider are in the process of adding a significant amount of intermodal trailing capacity. J.B. Hunt will look to grow its fleet by 40% over the next three to five years and Schneider is planning to add several thousand units in 2022, a 25% growth rate.

Intermodal traffic on the Class I railroads is down 7% year-over-year, according to the Association of American Railroads. However, growth initiatives at both companies produced volumes that outpaced broader intermodal trends during the first quarter.

“This may not be a completely smooth road, maybe some bumps in that road but I think overall the freight environment will remain constructive,” Bruffett said.

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The FREIGHTWAVES TOP 500 For-Hire Carriers list includes J.B. Hunt (No. 4) and Schneider (No. 7).

Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.