Arkansas’ public trucking companies reported strong first-quarter results fueled by strong demand for freight, but analysts voice mixed views about whether that demand will continue.
Bank of America Securities research analyst Ken Hoexter said its indicator for freight demand during the next three months fell again, making it the fourth consecutive decline since March 10, and at its lowest level since June 2020.
And Cass Information Systems Inc.’s freight index showed U.S. freight volumes slowed 0.6% in March compared with the same month a year earlier. March freight volumes also fell from February, which had a 3.6% year-over-year growth.
“We’re certainly seeing a freight slowdown and spot market correction, but in our view, it is too early to call it a freight recession,” CIS said in its report. The spot market reflects current shipping prices.
Hoexter’s report also said that shippers say freight rates during the next three months will be the lowest levels they’ve been since May 2020, during the early stages of the pandemic. But others said the trucking industry should continue its momentum. “The thing is, the overall freight market is somewhat complicated,” said Avery Vise, a trucking analyst at FTR Transportation Intelligence of Bloomington, Indiana. “If we look at all the indicators that we’ve seen to date, they just simply do not square with demand falling.”
He said freight companies should continue to prosper, “but certainly as we get into the third quarter and beyond, there’s definitely a potential for … some changes in demand.”
Vise said he’s watching supply chain issues, especially related to the COVID lockdowns in China. “We’ve seen in Shanghai, and now in Beijing, these sort of rolling lockdowns, and that is going to add further stress in the supply chain and also at the ports,” he said.
He said that while consumer demand for products “has almost certainly peaked and could be ripe for falling significantly due to inflation,” the industrial market should remain strong because of pent-up demand. “If we ever get to a point of a steady supply and semiconductors, for example, that will really strengthen automotive production,” he said.
Meanwhile, Arkansas’ publicly traded freight carriers saw strong first-quarter results.
Last month, J.B. Hunt Transport Services Inc. of Lowell reported first-quarter income of $243.3 million, an increase of nearly 66% from $146.6 million a year ago. It also reported revenue of $3.49 billion for the quarter, up from $2.6 billion.
ArcBest Corp. of Fort Smith reported first-quarter net income of $69.6 million, up 197.4% from $23.4 million a year ago. Revenue for the quarter was $1.3 billion, more than a 60% increase from $829.2 million in the same quarter a year ago.
USA Truck Inc. of Van Buren’s first-quarter income was $13.1 million, soaring 263.8% from $3.6 million in the same quarter a year ago. Revenue for the quarter was $201.1 million, a 26.9% increase from $158.5 million in the same quarter in 2021.
USA Truck CEO James Reed said in a news release that it was the best first quarter in the company’s history and the seventh consecutive quarter USA Truck had reported record earnings.
PAM Transport Inc. of Tontitown also reported record first-quarter income of $23.9 million, slightly more than double the $11.9 million it reported in the same quarter a year ago. Its revenue for the quarter was $219.4 million, an increase from $148.9 million a year ago.
PAM CEO Joe Vitiritto said in a news release that the company saw “significant growth in all our business units.”
Vise said he couldn’t comment on a specific company’s earnings reports.
But shipping rates hit a record at the end of last year and record rates also were reported in the dry van and refrigerated segments, Vise said.
J.B Hunt’s intermodal segment saw strong growth in the first quarter. Quarterly revenue was $1.6 billion, up from $1.18 billion. The company reported operating income of $200.9 million, up from $107.5 million. “Demand for the intermodal capacity remained extremely strong throughout the first quarter and importantly, it remains so today,” Darren Field, president of intermodal, said in an April 18 investor conference call transcribed by Seeking Alpha.
In March, J. B. Hunt said it was partnering with BNSF Railway Co. to expand its intermodal fleet and capacity. Field said the plan is to raise its intermodal container count to 150,000 in the next three to five years, representing a 40% growth from the count at the end of 2021.
“This will be a significant endeavor ... and will require investment in people, equipment and technology to get our desired outcomes,” he said.
Challenges: Fuel, Drivers
The increased price of diesel fuel has affected large and small carriers differently, Vise said.
The price of diesel fuel jumped 37.5% to $5.12 a gallon between January and April, according to the U.S. Energy Information Administration.
The larger trucking companies can pass the increases onto their clients in the form of fuel surcharges, Vise said. “That puts a lot of pressure on the small operations that don’t typically get fuel surcharges,” he said. “They’re having to eat the difference between the rate and the fuel cost.”
Another hurdle trucking companies face is having enough drivers. The American Trucking Associations estimates a driver shortage of 80,000, which could increase to 160,000 by 2030. But Vise said a number of drivers have left trucking companies to go out on their own and drive their own trucks.
“Since July of 2020 we’ve had about 185,000 [drivers do that], which by far outstrips anything we’ve ever seen,” he said. In 2020, there were 59,000 new carriers, and the biggest year before that was in 2014 with 44,000.
“It’s all representing a shift of capacity from the larger carriers to small carriers, and also from the contract market to the spot market,” Vise said. “And so my feeling for a long time is that we have not really had a problem with enough truck drivers. It’s just sort of a distribution of those truck drivers.”