A report released Wednesday by Susquehanna Financial Group would be music to the ears of truck drivers: Rates may have a “melt-up.”
The report by analyst Bascome Majors expressed enough confidence in a coming upturn in trucking economics that it raised its ratings from neutral to positive for four companies: C.H. Robinson (NASDAQ: CHRW), Echo Global Logistics (NASDAQ: ECHO), Landstar (NASDAQ: LSTR) and Werner (NASDAQ: WERN).
“Truckload’s supply-side overhang on asset-based pricing and margins looks like the primary problem, as underlying volume grew (Susquehanna’s italics) through 4Q and spot pricing showed more than seasonal m/m tightening despite falling y/y for 16 straight months,” the report said.
Majors noted that both the economy and truckload volumes are on the rise, while supply is expected to shrink 1% this coming year compared to a 4% increase in both 2018 and 2019. “Seasonal-plus patterns (are) returning to volatile real-time rates.”
The end result? “We see the risk of a ‘melt-up’ in spot rates in 2020 as far greater than a meltdown,” the report said.
With that, Susquehanna sees both stock price multiples and share prices following, resulting in the four companies that had a neutral rating being boosted to the positive category. But at the same time, Susquehanna left its positive rating on Schneider (NASDAQ: SNDR) and Knight-Swift (NYSE: KNX).
The report spells out all the carnage that has led to consistently poor quarterly results for the trucking sector: contract rates in November down 3.5% y/y based on TruckloadRate.com data after declines the two prior months of 3.7% and 2.5%, respectively, and spot rates that have declined for 16 straight months.
But the Susquehanna report is more positive on the direction of those rates, projecting that the decline will “moderate.” Majors looked at “evidence of tightening rates to close out 2019, better than the usual seasonal improvement … and just a few points behind the ELD-inflated upside trend of December 2017.”
“We expect dry van spot rate declines to moderate from high single digits to low- to mid-single digits in early 2020 before inflecting favorably with a month or two of rate increases during spring bid season,” the report said. “In short, a supply-side shock (weather or consistent capacity reductions) has a real potential to drive a ‘melt-up’ this year.”
Majors’ report cites the well-known numbers on how much capacity has increased. Federal Motor Carrier Safety Administration data shows that the Class 8 tractor count has grown for 13 consecutive months. The data is up for both big and smaller fleets.
But it’s coming to an end, the report said. “Most carriers expect a slow bleed of this extra capacity as we move through 1H20 aided by depressed rates, increasing insurance costs and new regulations that are expected to limit supply,” the report said. Among those regulations are the Drug & Alcohol Clearinghouse, AB5 (though it’s on the shelf for now) and hair-follicle testing. The report cites various numbers showing that capacity is already starting to slide, including the enormous drop in new Class 8 orders, down 45% y/y in the fourth quarter through November. “As rates have cooled, net orders and backlogs have followed,” the report said.
The economics behind the upgrade in the C.H. Robinson and Echo Global ratings are fueled by what Majors sees as a moderation in the decline in spot rates while contract rates remain lower. “Contract rates have continued to outpace the spot market for the 16th straight month,” with contract rates down 3.8% y/y while spot rates are down 13.3% during the same period, the report said.
But the report adds that “our recent conversations with shippers and carriers point toward a tightening spot market, aided by capacity-rationalizing events,” and then repeats the same factors as in truckload: clearinghouse, high insurance costs and hair-follicle testing. That sets up a situation for brokers in which spot rate declines in the first part of 2020 slow their pace and could turn positive “while contract rates continue their y/y declines and continue to track subseasonal as we move closer to 2020 bid season,” the report said.
Susquehanna’s report was not bullish on intermodal, though it did not make any cuts in the rating for Hub Group (NASDAQ: HUBG), which held at positive, or for J.B. Hunt (NASDAQ: JBHT), which held at neutral. However, Susquehanna’s earnings estimate for Hunt was reduced 4% “on downside margin messaging for both intermodal and brokerage/ICS.” Hub Group had its estimate increased 12% on the results of recent cost-savings operations.
Although the long-term outlook is positive, most of the changes Susquehanna made in earnings forecasts were in the red. For example, for the fourth quarter of 2019, Knight-Swift’s earnings per share forecast was reduced 18%, Werner’s was cut 16% and Schneider took a 10% haircut. But the forecast was flat for Landstar and down just 4% for Robinson. (Knight-Swift already has projected lower earnings for the quarter.)
And even with talk of a rates melt-up, it was mostly red in the forecast changes in EPS for all of 2020, though far less than the 4Q 2019 projections. Werner was down 7%, Knight-Swift was down 11%, Hunt was cut 4% and Echo was down 3%. Hub Group saw a 12% increase.
Susquehanna is bearish enough that it said it is still below Wall Street consensus on most big companies. It’s 9% less for Echo, 9% for Werner, 5% for both Knight-Swift and Robinson and 4% for Hunt. But Majors noted, “We expect street estimates to drift downward as we move closer to company earnings.”
Noble1
Would you like to see major carrier’s(corporations) dream come true ?
Quote:
January 15 2020
One astounding chart shows how the death of the union has made economic inequality worse
GOOGLE IT !
Steven Durham
Schneider, J.B.Hunt,and a couple other large carriers are at the helm that basically inform and suggest Federal Motor Carrier regs,as the govmnt actually has no clue what or how trucking needs to be regulated. As far as rates go,all you need to know is who is listed as part of the stock exchange. They can profit exuberately at 1 cent per mile.Try competing with that,you cant.
It’s going to take organization on a level that OOIDA presently can only provide. Representing more than just fighting unfair driver problems. Truck drivers VOTE,that’s the only way to get politicians to pay attention,and make CHANGE.
Personally, after 35 yrs ,the past 25 as O/Operator, I’m done.something I wish I had done 30 yr ago..good luck making “it” better.
Eddie Cervantes
Truckers ain’t what they use to be!! They will never get together and “shutdown”… never!!
Elvis Durant
Look at article. These articles only reflect large carriers. Nothing about the independent……….And again, NOT enough balls for a week or 2 shutdown!!!
Becky
Everybody knows C.H. Robinson is a cheap freight stop freaking hauling their stuff
Yve St. Johns
Actually, every time I’ve hauled for CH Robinson, their rate was better than what anyone else was offering at the time and I could still negotiate the rate I needed with them for an even better rate.
Art
Too many brokers is the problem.
Each broker is trying to win the same customers with lower rates.
Imagine 100-1000 brokers calling on shipper XYZ pitching savings.
Margins will be low as Uber, Convoy, etc, etc burn venture cap funds to buy customers with cheap rates.
Big Pete
A waist of time even reading this mess. Once trucking companies continue to move freight at a lower cost, they will continue to do so. Government control is destroying the trucking industry and it’s sad to say we as drivers and mega trucking industries are sitting back letting it happen.
Noble1
Competition is destroying the industry , not government control . The government would rather not get involved . In fact they deregulated the industry ! Had they not , then you would blame them for not deregulating it .
Deregulating it lead to fierce competition . Fierce competition lead to abuse . Abuse lead to government involvement . Now we’re blaming government because they will no longer allow us to kill each other through extremely exaggerated abuse ? That’s besides some clowns lobbying government to step in , in their favor !
In my humble opinion ………..
Daniel Phillip Hansson
You’re both right, but the problem with sustaining good rates goes deeper than the obvious. We need trucking companies to be more cohesive, and less combative. Like setting industry standards for rates verses fuel cost, insisting on experienced”safe” drivers base pay around $100,000.00 a year, this could be done by companies matching the appropriate amount of trucks to the amount of freight. 3ry thought we need the Government to get out of their ignorant , and reckless regulations against us ! Debt is a big problem, so forcing manufacturers to build a truck without eld, def EGR that simply.burns cleaner, and make the manufacturer provide zero interest loans with provisions for payment moratorium for off season are some ideas. All citizens need to force the government to invest in the 40,000 Carbon capture machines needed to clean up the environment instead fucking with us at every turn at great expenses. I think you all can see by now that mankind is simply to self serving, and ignorant to govern itself efficiently, so in reality for now do your best, and say NO to cheap freight!!!
Noble1
You’re suggesting for them to collude , LOL ! They tried and foreigners came in and threw a big competitive wrench in their driver shortage shenanigans . Foreigners took their industry by storm !
I touched base with something similar to what you’re suggesting in regards to creating equilibrium and reducing the size of booms & busts in the industry . I used OPEC in the oil sector as an example , however, OPEC is a far cry from achieving what it was created for and suppose to achieve .
The idea was to increase and decrease capacity on a needed bases based on supply & demand without throwing rates out of whack . My friend, that takes one heck of a well structured “organization” of which this industry is a far cry from achieving with their primitive mindsets .
The concept of “cohesion” can be achieved through a “Truck Driver Alliance” based on innovative ideas put into practice .
This has all been part of what I have been advocating . What we could achieve through such an Alliance would literally blow your mind . Best of all is that it would be “legal” ! This so called industry that I label as a “can of worms” simply needs to be restructured wisely and ethically rather than unscrupulously .
However, whenever there is big money involved it’ll attract all sorts of characters . In this case , some of those characters could be done without . You just need to outsmart them by first UNITING ! Your division is your weakness and feeding their advantage . Unions of yesteryear are sleeping at the helm with primitive structures as well . They need to be refined !
In my humble opinion ………
hungry owner op
if rates dont increase more owner ops will be folding. Maybe another 70’s style shut down is over due. It would only take a week to drive up rates.i could use a week vacation at home with family while warehouses filled up, store shelves got empty, the market would drop by 30%+. Keep pushing corporate thieves. New regulation is created for one reason, to generate revenue for government.
Abe F
It might move rates up a tick and then the shut down ends, all that capacity comes back and the rates go right back to where they were.
O/O’s can’t sustain a yo-yo of doing that on and off compared to the shippers. Too many O/O’s asking for fuel advances on every load because they don’t have the cash in their business vs a shipper with millions in the bank.
The reality is that there is too much capacity. Some MUST leave for rates to go up as capacity was added faster than supply. Capacity that carries a lot of debt which has put small carriers in the position of running for revenue instead of profit and taking what they can get rate wise.
Stephen Webster
We need a major protest strike across Canada and the U S as the current model is not working. Too many people getting hurt and not getting proper medical care.
Art
Employee misclassification as 1099 independent contractor is depressing rates.
The illegals will run for cheap, as they have less choices.
Its all nationalities without work authorization, not just Mexicans.
Employees would be better off if everyone was a citizen and could demand good work conditions.
But politicians work for big business who depends on cheap labor.
Mike
Spot on Art, I have been screaming the same for several years now. These foreigners come here, easily obtain operating authority and buy a few trucks, which they operate from overseas. 1099 the entire crew, and laugh all the way to the bank. I cannot compete with that, and it is getting worse by the day. I parked the truck, done.
SHOTT
Hey man I being saying shut it down for two weeks and watch a major change so independent Drivers and small companies get what they ask for
Art
Someone will always backstab the strikers for short term profit.
Noble1
What’s the “solution” that you’re proposing through a “shut-down” ?
You need to have a realistic and well defined plan ! Do you guys have one ?
Back in the 70’s strikes that included tons of drivers were due to oil prices skyrocketing leading to insane fuel prices and costs . However, it certainly didn’t prevent oil & fuel prices from swinging in the future . Therefore , their strike was a temporary Band-Aid for temporary change .
The only way you guys can even come close to a potential meaningful shut-down is through association with organized labour unions . They have the skills and tools to create change at the top . It all comes down to politics .
Do you have something meaningful to offer them which would attract their interest and further their agenda ?
At this current point there is nothing meaningful that affects all truckers to draw ALL truckers together . You need common hardship that affects ALL of you .
I personally don’t believe in shut-downs . However , when you start advocating a “strike” aka shut-down , you’re speaking organized labour union language .
Perhaps you should approach them and inform yourselves .
In my humble opinion ………..
Marty Bayless
This guy makes a great point! Though I have never been pro union, they have their place. We need the union to push the agenda or it won’t happen as we don’t have the horse power without them.
Art
Address employee misclassification.
Difficult to make a profit when foreigner carrier hires illegals as 1099 “employee drivers”, pays no taxes, pays no benefits.
Race to the bottom and lax government labor enforcement has created the cheap rates.
Solution?
Join the 1099 abuse bandwagon!
Hire illegals as 1099 employees (oxymoron), exploit their illegal status for profit as has been done for decades!
Noble1
Quote:
“Address employee misclassification”
This is extremely simple to accomplish through an “Alliance”(Truck Driver Alliance) . The incentive is to position drivers where they will make much more through proper classification rather than they make through being misclassified . Everyone is attracted to MORE MONEY !
The increase in earnings comes from restructuring through innovation . Trucker division is leading to their demise .
By the way , foreigners are not all crooks . Some pay very well on payroll and do things by the book . However, foreigners did take the industry by storm due to their will to offer a better deal to shippers . They are “competitive” . You can thank major carrier driver shortage shenanigans leading to more competition . It’s a free country and the industry was deregulated in 1980 .
Major carriers asked government to bring in more immigrants to fill the supposed shortage when in reality it was to keep driver wages(costs) low .
The foreigner calculates and realizes , hey wait a minute , rather than being jibbed by carrier xyz , they can buy their own truck and deal with the shipper directly , under cut the xyz carrier and make a nice living for themselves in the process rather than remain a mule . The word gets passed around and BINGO ! Carriers screwed themselves , LOL !
I’ve dealt with foreigners . We can’t put them all in the same basket , just like we can’t put all Americans in the same basket . Some have class , and some don’t .
In my humble opinion ………..
Noble1
Art ,
furthermore , I’ll copy and paste a comment of mine in response to another individual blaming foreigners .
Noble1
says:
Friday, January 17, 2020 at 8:29 pm
Andrew I beg to differ .
Those foreigners that you speak and complain about weren’t such an excess capacity problem within the midst of the cyclical peak while rates were increasing !
How come ?
But , now that the cycle reversed from boom to bust ,the foreigners are to blame for excess capacity and low rates ???
Too funny , LOL !
In my humble opinion …………
This is not to say that the industry isn’t in the midst of a tremendous misclassification problem .
The FAAAA needs to be , either abolished or ratified .
That being said , there’s a simpler way around all the red tape by UNITING and restructuring . We don’t need all truck drivers to unite , just enough . Then once established , the majority will beg to join . However, once we’re established it will cost the one’s who opposed us and or hesitated at first , even more to join in the “parent co.” afterwards . That being said , collective ownership in the PRIVATE parent co. will be limited .
It’s a little like buying into a penny stock before it becomes a successful conglomerate . Once it becomes fundamentally successful the value of the shares rise tremendously , and costs more to establish a position within the Co. However, the parent co. will not be a “public corporation” . It won’t be listed on a stock exchange . This is only served as an example .
A way around this increased cost in the parent co. and or once limited positions are filled , is to establish a subsidiary(s) which repeats a portion of what the parent Co. does on a smaller scale . However, the profits from the subsidiary(s) won’t be as high as the profits generated from the parent Co. The parent co. shareholders will continuously obtain profits from the subsidiary(s) since the parent co. shareholders will also have shares in the subsidiary(s) . That being said , the subsidiary’s will still generate tremendous profits . Subsidiary profits are distributed equally among private shareholders(members) that have shares in those subsidiaries .
Example : Subsidiary A profits are equally shared only among all subsidiary A’s shareholders . Subsidiary B shareholders share all subsidiary profits equally only among subsidiary B shareholders . Parent company shareholders have shares in all subsidiaries created by the parent and other subsidiaries created by subsidiaries .
Why would the parent Co. shareholders obtain more profits ? Simply because they are the “pioneers” . What if one of the parent shareholders wants to sell their share(s) . They can only sell their share(s) back to the parent co at fair value . Not to outsiders !
Can shareholders give those shares to family members through an inheritance ? NO ! Upon death shares are automatically converted to cash which will be distributed according to your testament .
What if I go through a divorce , does my spouse obtain half of my share(s) ? NO ! How come ? Upon share distribution legal counsel will counsel you to protect your “interest(s)” . (wink)
Can a subsidiary create another subsidiary ? Of course ! Can a subsidiary shareholder sell their shares to an outsider ? NO ! They can only sell their shares back to subsidiary shareholders . What if none of the subsidiary shareholders want the shares ? Impossible ! The parent co. holds shares in all subsidiaries and will buy back any shares in any subsidiary at fair value if subsidiary shareholders refuse to buy back shareholder shares collectively at fair value .
In my humble opinion ………….
Christopher
70′ s strike like they did when Hoffa was around.
These dirty bastards seem to forget.
That fancy car was brought to them buy a truck.
That dinner they eat was brought by a Truck.
AND WHEN THEY COME TO COLLECT… THEY BRING A TRUCK.
STAND UP A AMERICAN TRUCK DRIVERS, BECAUSE THE PAVEMENT YOUR STANDING ON….WAS BROUGHT BY A TRUCK..
Noble1
Hoffa wasn’t involved in the 1970’s trucker strikes , however, the Teamsters were .
Quote:
“On December 23, 1971, less than five years into his 13-year sentence, Hoffa was released from prison when President Richard Nixon commuted his sentence to time served
While Hoffa regained his freedom, the commutation from President Nixon was conditional upon that he cannot “engage in the direct or indirect management of any labor organization” until March 6, 1980.Hoffa contended that he had never agreed to any such condition.
He accused senior Nixon Administration figures, including Attorney General John N. Mitchell and White House Special Counsel Charles Colson, of depriving him of his rights by imposing this condition; Mitchell and Colson both denied this. It was suspected this condition had been imposed upon Hoffa due to requests from the Teamsters’ leadership, although Fitzsimmons also denied this.By 1973, Jimmy Hoffa was planning to seize the presidency of the Teamsters again.
Hoffa sued to invalidate the non-participation restriction in order to reassert his power over the Teamsters. John Dean, former White House counsel to President Nixon, was among those called upon for depositions in 1974 court proceedings.
Dean, who had become famous as a government witness in prosecutions arising from the Watergate scandal by mid-1973, had drafted the non-participation clause in 1971 at Nixon’s request. Hoffa ultimately lost his court battle, since the court ruled that Nixon had acted within his powers by imposing the restriction, as it was based on Hoffa’s misconduct while serving as a Teamsters’ official.
Hoffa faced immense resistance to his re-establishment of power from many corners and had lost much of his earlier support, even in the Detroit area. As a result, he intended to begin his comeback at the local level with Local 299 in Detroit, where he retained some influence.In 1975, Hoffa was working on an autobiography titled Hoffa: The Real Story, which was published a few months after his disappearance.
Hoffa disappeared on July 30, 1975, after going out to a meeting with Anthony Provenzano and Anthony Giacalone”
End quote .
Read this quote very carefully :
Quote:
“Deregulation had catastrophic effects on the Teamsters, opening up the industry to competition from non-union companies who sought to cut costs by avoiding unionization and curbing wages.
Nearly 200 unionized carriers went out of business in the first few years of deregulation, leaving thirty percent of Teamsters in the freight division unemployed. The remaining unionized carriers demanded concessions in wages, work rules, and hours. ”
End quote.
Deregulating rather than tweaking the industry is the major reason why the industry has become cut throat which has lead to curbing the majority of truck driver wages . Misclassification has become a major cancer in the industry since deregulation . Deregulation has lead to an epidemic of abuse due to competition .
Deregulation has lead not only to decreasing the majority of truck driver wages , but increased regulations as well .
Hoffa was a visionary . Reading on Hoffa is rather interesting for he and I have one major point in common , UNIFICATION ! First through the trucking industry , then extend in other modes of transportation and furthermore in other sectors and industries .
That being said , in my “Alliance” concept , no law nor person(s) could ever break it up , none !
Unfortunately , I wasn’t in a position to meet Jimmy Hoffa back in the 70’s . I wish I was . I would have attempted to persuade him as a genuine friend to view the “Teamsters” as a kind of prototype and walk away from it and join me in building an indestructible Alliance like has never been seen before , which would dwarf the Teamsters and any organized labour union for that matter. I would have suggested that he become a “silent” partner until March 6, 1980 .
As deregulation came around in 1980 , that would have been our major cue as the Teamsters began to fade in power . As a visionary myself , I think we would have gotten along quite well and prevented the industry from becoming the unfortunate can of worms it has become .
It’s too bad that such a great mind like Hoffa’s for the people has been lost .
In my humble opinion …………..
Mike
Closed my door yesterday. Parked the truck, just not worth the headache, and that damn ELD… I never drove the way I do now with that damn stop watch on my dash, now it is a race from the second I log my pre trip. I’m done, stick a fork in me. Found a job, start next week.