Asset operators: Carriers are (finally) starting to print money again

It is good to be in trucking again as nearly all key performance indicators (KPIs) are at the healthiest levels in years. The bull market for freight is alive and well; the question is how long it will last.

It is good to be in trucking again as nearly all key performance indicators (KPIs) are at the healthiest levels in years. The bull market for freight is alive and well; the question is how long it will last.

The medium-term outlook and visibility for freight — at least until many Americans are vaccinated (likely a second- or third-quarter 2021 event) — remain strong. We are mildly concerned about the potential headwind from an explosion in services demand that should transpire by Q4 2021, though mindful that this drag is likely tempered by the prospects for brisker economic growth and lower unemployment in 2021 (not to mention a $2 trillion stimulus package).

Many of the same themes we discussed in our last report remain unchanged, including: significant carrier leverage over shippers due to tight capacity and the ability to be selective on freight (which has reduced deadhead mileage).

The primary canary in the coal mine that could signal a premature end to the truckload bull market is new Class 8 orders, which have exploded and are running at multidecade highs. However, we would note that it takes six to nine months for delivery and, at least up to now, carriers have had tremendous difficulty seating trucks for a host of well-publicized reasons.

Spot rates and contract rates are starting to converge as the 2021 bid season approaches, and we expect contract rates to surpass spot rates shortly given most large, publicly traded truckload companies’ management teams are calling for at least high-single-digit annual contract rate inflation in 2021. This should further improve carrier profitability, gradually ease tender rejections and improve routing guide compliance moving forward.