© Reuters. FILE PHOTO: Two freight trucks are driven on the Fisher freeway in Detroit, Michigan, U.S. March 27, 2009. REUTERS/Rebecca Cook/File Photo
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By Priyamvada C
(Reuters) -The U.S. trucking industry may begin to see an uptick in freight demand in the back half of the year after grappling with another quarter of lower profits due to a slump in package volumes, company executives and analysts said.
The expectations have been largely fueled by U.S. retailers’ comments on their improving inventory position and prospects of better inbound container shipments.
Companies ranging from Target to Macy’s (NYSE:M) have signaled that they have largely moved past their bloated inventory issues from a year earlier as retailers look to stock up on in-demand products ahead of the crucial holiday season.
Meanwhile, a drop in volume of large containers handled by U.S. ports compared to last year is also set to narrow in the coming months, according to the National Retail Federation, indicating retailers are preparing for increased demand during the year-end holiday period.
“Most of our retail customers have worked through that inventory…so it does look like the freight markets have troughed from a demand perspective,” said logistics firm XPO’s chief Mario Harik, adding that freight markets could recover into 2024.
XPO, which serves companies such as Ulta Beauty (NASDAQ:ULTA), said it saw shipment count and tonnage flip to positive in July, indicating the start of a slightly improved freight demand environment.
Old Dominion Freight (NASDAQ:ODFL) Line Chief Financial Officer Adam Satterfield also expressed similar views last month on inventory.
“We get the sense that inventory levels are normalizing a bit,” Satterfield said in an earnings call.
Freight demand slumped last year after a surge during the pandemic-induced shift to online shopping as customers returned to stores and household budgets were pressured by sticky inflation.
This led to retailers moving to stop an inventory pileup, sending a ripple effect on trucks and railroads that move the goods.
“I don’t know that we’ve ever seen freight demand fall this far so fast and for so long without an accompanying economic recession,” logistics firm Knight-Swift Transportation chief David Jackson said in a post-earnings call with analysts.
As a result, adjusted net income at trucking firms such as JB Hunt (NASDAQ:JBHT), Old Dominion, CH Robinson (NASDAQ:CHRW) and XPO fell between 22% and 69% in the second quarter from a year earlier.
The second quarter was the most challenging for trucking firms in recent times, analysts and industry executives said, owing to high wage costs and ultra-low spot rates, or the current market price for a one-time freight shipment.
But there is light at the end of the tunnel.
“We’re still in the worsening part of the down cycle.. but by the time we get into next year, we’ll be returning to growth,” said Tim Denoyer of market research firm ACT Research.
Knight-Swift said a combination of demand recovery as import volumes return to more normal levels and supply reduction should lead to improving freight market conditions in the near future.
“There are still some areas where retail inventories are too high, but more and more categories will need restocking as time progresses,” ACT Research’s Denoyer said.
Meanwhile, the demise of Yellow (OTC:YELLQ) Corp, the third-biggest U.S. trucking company, may also help prop up rates for rivals such as XPO, FedEx (NYSE:FDX) Freight, and Old Dominion among others, analysts said.
Source: Investing.com
