Quick Transport Solutions Inc.

The 2022 Outlook for Trucking Companies

With 2021 now firmly behind us, it’s time to look ahead. What is in store for trucking companies and other players in the transportation sector in 2022? Furthermore, what is the market outlook? As companies make predictions, the year may turn out differently than most people think.

Fortunately, the outlook is good. As we got closer to the end of 2021, third-quarter fleet earning reports looked healthy. The broader market looked healthy enough that stock prices were up 15.6% for the final earnings report season. Meanwhile, the S&P 500 clocked a 7.6% increase. Large, public trucking and logistics firms reported solid earnings.

The bigger story of Q4 was the large rate of improvement in yield mixes, which include pricing for fuel, the fuel surcharge, and then the mix of both. Trucking companies across the board have been experiencing big improvements in yield levels. With other costs dropping, much of the improvement here goes to offset inflation and vastly improve the bottom line.

If you look at where stock levels stood for certain industries, you will see big winners in delivery, brokerage/logistics, and intermodal. OTR and LTL trucking operators are also up big. Losers in the market include those in warehousing, dedicated truckload, and the final mile. What are some other takeaways from end-of-year financials in transportation?

OEMs Work at Breakneck Pace

In what is a surprise to no one, truck OEMs are having trouble delivering vehicles, largely due to the supply chain and semiconductor shortage. This is especially true as North American Class 8 net orders in December 2021 recovered to over 23,000 units sold. Orders for big rigs have exceeded production levels for three consecutive months now.

There was a bit of a Class 8 cancellation uptick in November, but orders continued to pick up steam into December. Then, once December came, orders sank, which reflects continued problems on the supply side. Production remains constrained due to supply chain issues. The fact remains that economic and industry demand remains at record highs. The problems with OEMs are not related to the economy or underlying weakness, but instead are related to excessive backlog lead times.

The final quarter of 2021 showed that OEMs were still entering orders. Many believe some of the supply chain problems are behind us. With manufacturers keeping backlogs at current levels, they can exert greater control over their performance. Current order volume demonstrates 2022 will bring greater demand for trucks and truck components. OEMs certainly are sitting on massive fleet commitments for the year.

To keep from becoming overwhelmed, OEMs are delaying orders until they know how many they can build each month. While supply chain issues are slowly working themselves out of the system, there is still plenty of uncertainty on the supply side. Build rates will continue to be impacted by this uncertainty.

Trucking Sector Performance

OEM capacity certainly was one of the big deals of the year, but how has been overall performance in the trucking sector. Let’s first look at pure truckload data. Truckload fleet earnings are still contracting a bit, but yields are rising ahead of expectations. Higher yields offset rising driver wage costs. This acts with a dampening effect on inflation. The final quarter of 2021 saw double-digit revenue growth. This was also the fifth consecutive quarter of huge growth. Still, a lot of truckload operators have been pairing back their capital spending to account for production and manufacturing challenges.

Meanwhile, dedicated fleets have seen their ups and downs. There have been some dark spots on their growth potential. Long-term contracts, for example, do not allow for trucking operators caught in them to flex their rates to accommodate changing labor costs.

Excessive purchased transportation expenses also continue to eat into margins. While revenue growth is higher on the broader market, auto plant shutdowns and retail staffing challenges eat into the bottom line.

LTL and Freight Brokerage Health

LTL fleets are seeing big benefits in the current environment. Yet, yields are up over 15% on the year. Tonnage growth has also been strong as shippers struggle to find ways to get their freight delivered. Many LTL operators are seeing a fifth or six straight quarter of solid earnings growth, regardless of wage increases or other unexpected costs. LTL continues to be a haven for those looking for stability in their transportation holdings.

Another bright spot is in the brokerage and logistics space. Brokerage and logistics groups collectively share higher revenue growth rates. While contract rates are not keeping up with spot rates on a historical level, revenue growth is outpacing operating expense growth. Due to higher yields on the brokerage side, these operators saw their margins improve dramatically in Q3 and Q4 2021.

Growth is expected to continue in 2022. The spread between revenue yields and already committed expenses has been narrowing for some time. Expect brokerage profits to continue to rise as a result. There are still some unknowns coming into the New Year, but many expect stability to remain the name of the game.

What Will Dominate the Landscape?

In 2022, the freight landscape will be dominated by the 70% share of freight transport conducted by trucks. This will come in well ahead of the rail sector. Freight rail is actually expected to fall 14.6% in 2022. Expect to see the trucking sector make up for that shortfall in intermodal. Even sea transport is expected to see slower growth, with a 7% contraction. The overall intermodal market is expected to hit a $30 billion market cap in 2022, up $11 billion from where intermodal was in 2016.

Many trucking companies expect to see many of the usual suspect problems rear their head in 2022. Fortunately, a strong economy and new solutions will make a good environment for transportation sector operators. No matter what, a difficulty in finding qualified truck drivers and other employees will further define 2022.

The good news is that business opportunities are plentiful for trucking companies, even if the personnel is lacking. Trucking companies are managing the labor shortage by improving working conditions, raising wages, and offering new and improved benefit packages. Fleet managers put retention efforts at the top of their priority lists in 2022. Smart fleet managers are also using safety bonus incentive programs to encourage safe behavior from their truck drivers.

Expect to See Shipping Rate Increases

As industries grapple with the global shipping container disruption problem, other challenges remain. Expect to see shipping bottlenecks continue to vex shippers and logistics providers in 2022. Fortunately, ports are already seeing some improvement. But there will also be shipping rate increases in 2022.

FedEx has already announced general rate increases for 2022. This year marks the highest GRI average rate increase since 2013. FedEx’s rate increase for 2022 sits at 5.9%. These costs will have to filter their way through the system somewhere. It also represents a substantial increase over previous years.

Meanwhile, the USPS is decreasing some of its rates. For example, Parcel Select Ground will fall across the board and is becoming very competitive, with up to 58% decreases compared to the current rates. This allows companies to make up for some of their losses shipping through large legacy carriers.

Businesses Turn to Technology for Innovation

Businesses are increasingly turning to technology to provide the tools they need to manage supply chain disruptions. This allows them to improve processes and build better relationships with their customers along the supply chain. Technological solutions can help companies conduct logistics operations more successfully, with greater efficiency, and with better data quality, compliance, risk management, and so much more.

Many of the big players like Amazon and Target have already invested in real-time supply chain solutions. These solutions utilize everything from machine learning to advanced analytics and instant response times. Third-party vendors continue to develop apps and cloud-based solutions to improve supply chain visibility. This allows companies to provide more consistent customer experiences in an ever-changing landscape.

Cloud technologies will allow businesses to visualize stock shortages, track shipments down to the meter, and properly forecast. Platforms are increasingly more advanced, providing at-a-glance opportunities to manage product delivery from endpoint to endpoint. Supply chain digitization will become even more important in 2022. Will your company be ready for it?

From analytics to augmented reality and more, technology is going to reshape the way trucking companies get the job done. The good news? This stands to only benefit those who make a living in the transportation sector.

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