Werner Enterprises (NASDAQ: WERN) presented a market update at Morgan Stanley’s 6th annual Laguna Conference on September 12, where John J. Steele, Executive Vice President, Treasurer and Chief Financial Officer for Werner made his predictions for the upcoming peak season and addressed issues and solutions related to the capacity crunch, e-commerce, and the potential impacts of Hurricane Florence on the market.
Steele noted that they’ve seen “a very strong freight market for most of the year,” with rates up by 11% in the first half, amounting to “essentially double the rate improvement so far year-to-date compared to any prior year in the last thirty.”
Following an unusually strong July and August, Werner anticipates a strong peak season for both consumers and shippers. So strong, in fact, that they’re planning to start the peak season sooner, according to Steele.
Steele also made sure to address the potential impact of Hurricane Florence on operations, estimating that about 3% of Werner’s trucks are based in North Carolina and roughly 1% are in the area surrounding the projected spot of the storm’s landfall.
“If there is significant flooding damage done by Hurricane Florence, that would be disruptive to the market, particularly in that regionalized area” Steele stated.
“As e-commerce becomes increasingly important for brick-and-mortar retailers to compete with Amazon, we’re seeing more companies turn to dedicated solutions to get that high-service, two-day delivery component in their network,” Steele commented.
Despite the tough battle in turnover, Steele doesn’t see any quick-fix solutions to the driver problem. “Clearly we would need to increase the supply of drivers in the market, and the two solutions that are out there do not look viable,” Steele said.
One would be to change immigration policy to “bring in people to do a job that is not a popular job in the US,” and there’s the push to lower the age of truck drivers, but Steele acknowledged the amount of research and policy change that would need to occur in order to make these options more substantial. “Maybe 5 to 7 years down the road,” Steele concluded.
Regarding a spike in truck orders, Steele confessed that he didn’t “understand how the trucks orders can be north of 50,000 two months in a row following seven months of 30,000,” acknowledging the impact that tax reforms, ELD tightening, and a growing economy has had on numbers this year. “If these orders become trucks that are built, I don’t know where the drivers will come from,” said Steele.
Within the used truck market, Steele noted that “if some of these orders turn into builds, it could put a little supply pressure and probably reduce pricing in the used truck market, so that’s a concern” looking toward 2019.
“As long as the economy remains strong and the driver market remains tight, pricing leverage will happen in the market. Pricing will be higher in 2019—how much higher will depend on the strength of the economy. We’re in uncharted territory due to the increases we’ve experienced this year. As long as the economy doesn’t roll over, we expect a good pricing market next year,” said Steele.
A recording of the presentation, as well as the slide deck, can be found here.