Loaded and Rolling: J.B. Hunt and Wabash make a deal; Susquehanna trucking outlook

Stifel suggests softer consumer demand for first half of 23’

Thomas Wasson

2 years ago

J.B. Hunt and Wabash cut multiyear trailer deal

Wabash and J.B. Hunt Transport have signed a multiyear deal that will supply J.B. Hunt with 15,000 trailers. The size and scope of the pact are significant, as the past two years saw pandemic-related supply chain disruptions throttle up new trailer orders, causing the average age of existing trailers to rise. Older trailers mean more maintenance costs.

“The deal — the exact length was undisclosed — is significant,” FreightWaves’ Alan Adler writes. “It helps Wabash reduce uncertainty surrounding customers who place orders and then cancel them when economic prospects change. OEMs historically have allowed this behavior before it orders materials.”

What the trailers will be used for appears to go beyond simply updating the aging trailer pool.

“The trailers provided by Wabash over the next few years will help us expand capacity available for services like private fleet outsourcing and drop-and-hook freight,” Nick Hobbs, J.B. Hunt COO and president of contract service, said in a news release,

For a multimodal company like J.B. Hunt that uses intermodal, over-the-road, dedicated and power-only moves, this agreement will provide greater predictability and cost savings for its trailer orders.

Expect more deals like this in the future.
“It’s easy to see why Wabash would want to move in the direction of multiyear agreements,” Jeff Kauffman, principal of Transportation & Logistics Equity Research at Vertical Research Partners, told FreightWaves. “Investor speculation on month-to-month trailer order volume and associated production levels has contributed to tremendous volatility in the share price over the year. Plus, the deeply cyclical nature of trailer manufacturing makes staffing difficult.”

Susquehanna trucking outlook

A new year brings new predictions for the trucking market. Here are some highlights from a report by Susquehanna Financial Group released Monday.

Susquehanna’s Bascome Majors notes: “Looking upstream in container shipping markets, we see no reason to expect a shift to retailer restocking before at least 2Q. This suggests a hard-to-stomach 1H23 fundamental cocktail of a lingering volume ‘air pocket,’ a rollover in contract pricing, and incremental [year-over-year] pressure from equipment gains.”

Retailer restocking and lagging volumes bode poorly for truckload orders. This also impacts container shipping and intermodal, which a few large-asset-based trucking companies have invested in as a growth strategy.

“The 2023 setup for intermodal looks increasingly challenged from weak container port volumes (which feed the critical long-haul intermodal routes), with no signs of life in leading indicators, truckload contract pricing pressure that will weigh on intermodal core pricings, and a likely loss of accessorial container storage fees as retail supply chains normalize without enough freight demand to immediately capitalize on the loosened container supply,” Majors said.

Being the resident trucking expert, trying to predict what flows into truckload orders can feel like reading tea leaves unless you also factor in container import levels and intermodal performance.

Another important trend to watch will be contract rates.

“We expect contract rates to turn negative in early 2023, putting pressure on ex-fuel [year-over-year] yield growth,” Majors said. “Brokers were negatively impacted in the quarter from sub-seasonally performing contract rates and spot rates that ended the quarter stronger than expected, leading to gross margin compression.”

Market update: Stifel suggests softer consumer demand for first half of ’23

On Wednesday, Stifel Transportation Group, a subset of global wealth management and investment banking firm Stifel, released its transportation outlook for 2023. One major topic to watch will be consumer spending versus inventory levels.

“We think these demand headwinds will be more pronounced for durables with non-durables potentially rebounding more quickly,” the report notes.

For those outside economics and finance, durable goods typically have a lifespan of three years or more while nondurable goods are consumed in less than three years.

Nondurable goods like consumer-packaged goods, drinks and food will remain robust. But for those shopping for refrigerators, televisions, bicycles, computers, etc., expect more deals until the existing inventory is destocked back to appropriate levels.

Regarding inventory, the report noted that inventory levels are moderating, with the expectation of new order activity coming later in the second half of 2023.

That new order activity should provide some relief for truckload volumes. Inventory levels, consumer demand and buying trends all directly contribute to truckload orders. The current sluggish situation is expected to persist at minimum through the first quarter of 2023.

FreightWaves SONAR spotlight: Diesel prices ride into 2023 at record high for January

Commentary courtesy of the Daily Watch, a newsletter for SONAR subscribers

Summary: Per data from the Energy Information Administration (EIA), the national average cost of diesel is now at $4.55 per gallon. Not only does 2023’s level set an all-time high for January, but it absolutely shatters 2022’s record for the month ($3.85). Of course, diesel prices are not consistent across the country, as they range from roughly $4 per gallon in Texas’ major markets to $5.60 in California.

While diesel prices have skyrocketed ever since Russia invaded Ukraine last February, this current rise is also attributable to a wave of U.S. refinery shutdowns. A severe cold snap in late December took a great deal of refinery capacity offline due to hard freezes. The good news is that many of the affected refineries, including the largest complex in Port Arthur, Texas, have made repairs and are back online. The bad news is that, in the interim, stockpiles of diesel and other distillates fell 14% below the five-year average. Such a large draw will create upward pressure on prices until inventories are rebuilt.