In our view, COVID-related demand and capacity dislocations have touched off an upcycle in trucking markets supported by fundamentally constrained capacity. This week, a new batch of corporate earnings (UPS, WERN, USX, CHRW) helped us understand how transports experienced that volatility.

 

In 2020, COVID-related volatility hit parcel carriers first as consumer spending quickly migrated online: UPS saw a surge in B2C deliveries and associated margin compression and revenue per parcel declines in Domestic Package. Some of that behavior is already normalizing as B2C deliveries begin to decline relative to B2B.

 

As retailers selling CPG, food and beverage, and household items saw increased demand for their products, truckload carriers with relevant customer portfolios enjoyed better volumes, asset utilization and, increasingly, more lucrative opportunities in trucking spot markets. Truckload carriers have significant upside to come: USX management said they expected strong conditions for four to six quarters.

 

Non-asset 3PLs will be the last segment to see net revenue and margin uplift from the newest trucking upcycle, because costs are growing faster than pricing to customers. Further, contract freight negotiating leverage is considerably weakened by the uncertainty and unpredictability of the current truckload volume surge. Outperformers will have cut costs aggressively to capture increased operating leverage on the upswing as volume growth outpaces headcount growth.

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