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Be prepared for 'trucking winter,' analysts warn

By Bill Peters

KeyBanc analysts downgrade J.B. Hunt and Schneider National, contend that 'imports decelerating, inventories normalizing and spot (rates) below contract rates' suggest weakness could extend into next year

Analysts are bracing for a "trucking winter" on signs weaker demand and falling transportation prices could extend through the holiday season and into next year.

KeyBanc analysts Todd Fowler and Carney Blake downgraded trucking companies J.B. Hunt Transport Services Inc. (JBHT) and Schneider National Inc. (SNDR) in a Thursday note, taking the stocks to "neutral" from "buy."

Both companies, to some degree, haul goods in trucks and connect trucks with rail lines, and the analysts expect volume and prices to fall in the latter, "intermodal" segment, and said they saw "few near-term opportunities" around third-quarter results.

"Our checks indicate freight activity was seasonally weak through late-September, with limited indication of holiday demand to-date," they said. "Further, with imports decelerating, inventories normalizing and spot (rates) below contract rates, we now see volume and pricing weakness into 2023."

"We understand the early-cycle nature of trucking names; however, given macro data points, we are inclined to prepare for a 'trucking winter' before a potential 'trucking spring,'" they continued.

J.B. Hunt shares fell 2.3% on Friday, and Schneider declined 1.7%.

See also: After rail strike averted, chance for 'freight recession' should still spook investors, analysts say

Spot shipping rates for ocean carriers and trucks have fallen this year as more space on containers and trailers opens up in the wake of last year's supply-chain mess, during which U.S. customers had to pay as high as $20,000 or $30,000 to get a container shipped on some longer ocean routes. Demand for goods has since weakened due to a combination of inflation, recession concerns and a resumption of prepandemic life.

In trucking, most U.S. freight volume is under longer-term contract rates. But spot rates can influence the price of contract rates. Spot rates, the KeyBanc analysts said, were 25% to 30% below contract rates. They said they expected "mid-single digit contract declines in 2023."

Import volumes into Southern California, where the ports of Los Angeles and Long Beach serve as major gateways for products shipped over the water from Asia, fell 9% month over month in August and 12% year over year, the analysts said. However, they said, some of that import volume had shifted to ports on the East Coast.

J.B. Hunt shares are down 21% so far this year, while Schneider is down 23% over that time. By comparison, the S&P 500 index has fallen 23% in 2022.

-Bill Peters

 

(END) Dow Jones Newswires

09-30-22 1342ET

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