Truckload Market: Overcapacity continues to cast a shadow

These are challenging times in the truckload (TL) market, as top carrier executives are predicting it will be the second half of 2025 before a rate recovery occurs in the sector.

Until then, TL shippers will still have the upper hand as they continue to tell carriers that they need discounts off current market rates. In the meantime, carriers say those rates are not enough to offset higher costs, as capacity remains loose overall.

As shippers remember, dry van loads were down in 2019 and 2020 before rising 6% in 2021. However, they rose just 1% last year and are forecast to rise just 1.7% this year and next, according to FTR, a research firm that tracks the TL market.

“Our latest forecast is a little stronger, but it’s still pretty sluggish,” says Avery Vise, FTR’s vice president for trucking. “We’re not predicting rate increases until the second quarter of 2025. And by all indications, it’s going to be a long, drawn-out thing.”

As large, publicly held TL carriers report their mid-year earnings, they’re trying to fill remaining capacity with whatever freight they can find in the sector. The hope is that 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. Private and dedicated trucking still ranks that largest at $459 billion, as per the SoL report.

“Our earnings improved sequentially in the second quarter, and while industry-wide headwinds persist, we’re encouraged by early signs that the freight market is progressing toward equilibrium,” says Derek Leathers, chairman and CEO of Werner Enterprises, the nation’s 6th-largest truckload carrier. “Tough times don’t last, but tough people do.”

Truckload freight in this country is roughly split—half industrial and half retail. As one TL executive said: “Everyone is still waiting around on the industrial side, as highly touted infrastructure projects that were supposed to break ground this year mostly haven’t happened yet.”

On the retail side, inventories appear to be less bloated and are now at an acceptable level. At the same time, freight on containers from Asia has propelled growing levels of TL freight from the West Coast.

“Peak season is expected to look similar to 2023 levels, which was uninspiring, though management ultimately sees it as a wait-and-see approach, with plenty of available capacity to handle any upside surprise,” says TD Cowen trucking analyst Jason Seidl.

With that in mind, let’s dive into our annual late-year review of the TL sector and see what factors are affecting capacity and rates and then consider strategies some large TL carriers are using to mitigate the inevitable boom-bust nature of TL freight volumes.

Acquisitions in vogue

Some large TL carriers aren’t waiting for conditions to improve in the sector to boost their bottom lines. Some are venturing into the $59 billion less-than-truckload (LTL) space for acquisitions of existing carriers to diversify their revenue base.

Knight-Swift Transportation Holdings Inc. is acquiring the operating assets and has assumed certain liabilities of the non-union regional LTL division of Los-Angeles-based Dependable Highway Express (DHE). The acquisition is expected to be immediately accretive to Knight-Swift’s earnings per share, the company said.

The move follows Knight-Swift’s very aggressive actions in the LTL market place following the closure of Yellow Transportation, the nation’s 4th-largest LTL carrier, on Aug. 6, 2023.

Knight-Swift spent about $2.2 million to acquire 10 Yellow Corp. terminal leases in the western U.S. Three were in Idaho, two each in Colorado and Kansas, and one each in Missouri, Nebraska and Georgia. Knight-Swift had truckload-related revenue of $3.9 billion last year.

Knight-Swift’s LTL plan is to have complete 48-state coverage by 2025 after entering the LTL arena about three years ago. Overall, the company has 38 LTL operations open in 2024 and will add over 1,000 doors to its network—representing a 22% increase to its door count from the beginning of 2024.

“We’re excited to take the next step toward building a nationwide LTL business, and especially to grow our network to include the key Southwest markets of California, Arizona and Nevada,” says Knight-Swift CEO Adam Miller.

In addition, Montreal-based TFI International is planning an acquisition in 2025, with substantial TL and LTL deals on the horizon, according to CEO Alain Bédard. TFI is planning to spin off its truckload division, but appears to be waiting for better market conditions.

The company paid $1.1 billion for flatbed specialist Daseke Inc. in a deal that closed last April 1. Daseke, the largest flatbed carrier in North America with about 4,900 tractors and 11,000 flatbed and specialized trailers, was recently added to TFI’s truckload division.

Bédard is confident that TFI will have the funds to expand further in the LTL space. “TFI is a free cash-flow machine,” he boasted during a recent earnings call.

However, whether TL carriers can leverage the LTL market for consistent profit is an unanswered question. “We haven’t seen anyone else—except Knight-Swift—take that approach,” says FTR’s Vise. “You can only do that with regional-type operations. Knight-Swift has a regional approach to truckload. That meshes well with LTL. There’s a certain logic in operating both a TL and LTL carrier in that it acts as a hedge in the market, but you have to be a certain size to pull it off.”

Results aren’t promising

After a disappointing second quarter, Landstar, the nation’s 5th-largest TL concern, saw its owner-operator headcount drop 13.9% year over year to 8,385 last quarter. Significant repair costs and long out-of-service periods were cited by Landstar president and CEO Frank Lonegro during a recent earnings call.

“We would expect [independent contractor] count to continue to decline in the coming months, given the challenging operating environment faced by many truck owner operators, but at a slower pace,” Lonegro said.

Meanwhile, at Schneider National, the 3rd-largest TL carrier, second-quarter income from operations fell 51% year over year to $51 million. But Schneider’s truckload segment experienced a $7.6 million revenue increase during the quarter. That was offset by revenue declines in its intermodal and logistics businesses.

Schneider president and CEO Mark Rourke said on a recent conference call that he anticipates “movement toward more typical freight replenishment and seasonality trends contributing to continued improvement in margin performance across our operating segments.”

That bit of optimism seems to extend to Chattanooga, Tenn.-based Covenant Logistics Group, the nation’s 24th-largest TL concern. It recently increased prices three times in 45 days last quarter and could increase rates more before the end of the year, said CEO David Parker on a recent earnings call.

The expedited and dedicated truckload carrier hadn’t raised prices in the previous two years with the freight market in a downcycle. But Parker said that it has seen a sustained pickup in demand since mid-May.

“We don’t have the momentum yet to go full-fledged and say ‘roll out rate increases all over to every customer,’ but we’re looking at that,” said Parker on the call. “And the ones that are not performing well are the ones that we’re going to have talks with.”

Market factors affecting rates

Most TL executives told us that it was too early to make a call on the impact of the so-called peak season that usually runs from summer until late fall. West Coast volumes were up, but excess capacity lingered within the sector as we were reporting.

Truckload executives tell us they’re having discussions with shippers about what their needs may look like and what their demand may reflect in an effort to make sure that they’re able and capable of supporting their needs.

“Things are starting to feel back to normal,” says Leathers of Werner.

All those factors point to creating a long sought-after “stickiness” in freight demand. Another positive sign for carriers is an increase in rejection rates that TL carriers are demanding to cover increasing costs across nearly all levels. Some carriers are reporting that they’re turning down as many bids as summer of 2022, the last period of sustained profits for the TL sector.

“Overall, market challenges linger, but we continue to strengthen and actively position Werner to capture operating leverage as the freight market improves,” adds Leathers.

FTR’s Vise says that sluggish TL market conditions are due to two factors—little acceleration in TL demand and a market shift in 2021 with many, perhaps as many as 126,000, new entrants in the TL marketplace.

“There are 36% more carriers in the TL market today than in February 2020 when the pandemic hit,” says Vise. “The larger end of the market has right-sized its capacity. But they have no ability to affect the smaller end of the market, fleets with one or two trucks who essentially work for freight brokers.”

As Vise concludes, the main issue is that while the asset-backed community is back in line as far as capacity goes, “the broker community now marshals a lot of capacity that was not in the market before the pandemic.”