Large TL carriers, fighting sluggish freight demand, see hope in 2025

As the also-rans used to say in baseball, large truckload (TL) carriers are largely writing off the remainder of this year’s peak freight season and are quietly saying, “Wait ‘til next year.”

As large, publicly held TL carriers report their second-quarter earnings, they are trying to fill remaining capacity with whatever freight they can find in the sector. The hope is normal “seasonality” and TL freight demand returns in 2025.

Truckload freight is the second-largest sector at $408 billion in the $931 billion trucking industry, according to figures compiled in the most recent State of Logistics (SoL) report. Just FYI, private or dedicated trucking ranks largest at $459 billion, as per the SoL report.

Jason Seidl, trucking analyst for TD Cowen, in noting second-quarter earnings for TL giants Knight-Swift, Landstar and others, commented on Landstar’s earnings report: “3Q guidance resets estimates lower, and (Landstar) management doesn't expect any material upside surprises through peak.”

Landstar, Jacksonville, Fla., which uses exclusively owner-operators (which it refers to as Business Capacity Owners, or BCOs), is the nation’s fifth-largest TL carrier. It noted that the BCO count at Landstar “continues to track below pre-COVID levels though deceleration inches toward market equilibrium.”

Landstar’s TL loads fell 6.8% in the second quarter and rose 0.7% sequentially. Landstar management called out a weak May that declined 0.5% per workday (when typical seasonality is +3.3% in May).

The company primarily attributed the decline to multiple automotive accounts. That sector has been hurt by falling sales of electric vehicles, which continue to clog dealer lots with excessive inventory.

Landstar’s revenue per load declined year over year and fell 2% sequentially. But that decline almost looked rosy as Landstar’s third quarter guidance called for almost minus-6% sequential growth at the midpoint.

“(Landstar) management was hesitant to call any bottom, particularly as July was softer than expected and load guidance of -8% at the midpoint comes in below our previous forecast,” Seidl said in a note to investors.

Landstar offered some commentary on peak season that, unlike some other transport earnings calls this season, was “cautious,” Seidl reported.

In fact, Landstar does not see an “overly vibrant” peak season this year and there is a general reluctance to build up much inventory given how much uncertainty there is with consumer demand and spending.

“Peak season is expected to largely look similar to 2023 levels (which was uninspiring), though management ultimately sees it as a wait and seev approach, with plenty of available capacity to handle any upside surprise,” Seidl reported.

Landstar’s BCO count stepped down 3% in the second quarter, as expected. That compared with the 4% decline we saw in the first quarter.

Landstar management said it expects the deceleration to continue into third quarter, as more carriers exit the market given (BCO count continues to run below pre-COVID levels). Landstar's network allows them to see changes in fleet sizes faster than traditional TL carriers.

Smaller TL carriers continuing to exit the business and larger carriers are shedding tractors, parking them until the market improves. While still declining, July was Landstar’s lowest level of net decline since 2Q22. Seidl saw that as “a promising indicator” that capacity may be near an inflection point.

Werner Enterprises, Omaha, Neb., the nation’s sixth-largest TL carrier, said its truck count decline 4% sequentially in the second quarter but should pick up modestly in the second half as Werner sees momentum on the dedicated demand side.

“Despite signs of a weak discount retail/consumer market, Werner attested to improved bid opportunities and highlighted that in the early third quarter. Werner’s dedicated unit “has seen more business wins than losses,” Seidl noted.

“Despite a relatively positive demand picture, we believe margins should continue to be pressured through the first half,” Seidl said “As we have noted prior, dedicated yields are expected to remain pressured as shippers have locked in low rates through '24 bid season.”

One bright spot for Werner is cost measures continue to pay off. It raised its annualized savings target to $45 million, up from $40 million. But Seidl said those gains are likely to be offset by lower expected gains in sales as equipment prices remain pressured.

“Werner expects the steady but competitive operating environment to continue for Dedicated, with improvement in One-Way and Logistics demand leading up to peak season,” Baird analyst Garrett Holland said in a note to investors.

“Competition remains intense with select fleet losses for Dedicated,” Holland said. However, he said Werner’s retention rate remains above 90%.

Spot freight rates are expected to be stable early this quarter before gradually improving in the fourth quarter,” Holland said. Werner expects normal seasonality leading up to the peak season, he added.

Phoenix-based Knight-Swift, the nation’s second-largest TL carrier, was another bright spot in the TL market Its outlook suggests a 95 operating ratio (OR) in this quarter, perhaps improving to the low 90s by the end of the year, beating previous forecasts.

“We believe (Knight-Swift) sounded more confident with the feeling that the `bottom is behind us’ and the second half should see seasonality within truckload,” Seidl said.

Despite a recent step down in spot rates, Knight-Swift has seen strength in pop-up business and customers are comfortable with where they are sitting with inventory levels, analysts said.

Green Bay, Wis.-based Schneider National, third-largest TL carrier, reported second-quarter results that were ahead of lowered expectations. Baird’s Holland said productivity gains helped counter headwinds in this still-challenging operating environment.

“The return of seasonal demand and select contract pricing gains signal the market is starting to shift though,” Holland said in his note to investors.