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The truckload capacity correction is still in the "early innings," carrier executives said at an investor conference this week.
A regulatory crackdown launched a year ago compounded the impact of prolonged economic weakness, which had already forced numerous small and midsize fleets out of the industry. The recent surge in diesel fuel prices has further plagued small operators, many of whom don't have recovery mechanisms in place. Also, the Supreme Court's broker liability ruling adds another gating factor on capacity, requiring both brokers and shippers to more carefully select their transportation partners.
"There was no standard for entry-level driver training," Jim Filter, Schneider National (NYSE: SNDR) President and CEO, said at Morgan Stanley's Annual Laguna Conference.
He pointed to the thousands of drivers who joined the industry during the previous upcycle, noting that many acquired their authority unlawfully and lacked proper training. The entry point for this group has been narrowed, with the forced closure of sham driver schools. The capacity that is entering the market is being scrutinized more heavily than in the past as shippers and brokers are less likely to tender loads to new motor carriers without safety ratings. Further, strict oversight of ELD providers is keeping drivers from skirting hours-of-service rules.
These actions are continuing to remove the drivers that "were not playing by the same rules as everybody else," Filter said.
Executives from Werner Enterprises (NASDAQ: WERN) echoed the impacts the changes are having on carrier selection. They believe that the industry's capacity crunch may only be in the second or third inning, noting the screws have further tightened following the broker liability (Montgomery) ruling.
Werner's management team cited a recent Texas Supreme Court ruling involving Home Depot (NYSE: HD). In that case, the retailer was dismissed as a defendant in a liability suit over a fatal accident that occurred while Werner was transporting its cargo. Ultimately, the court determined that Home Depot met its legal obligation simply by hiring a reputable carrier.
Filter said Schneider's brokerage unit has culled its approved carrier list to just 14,000 from 60,000 at the peak. The company initially started removing operators a couple of years ago in efforts to thwart cargo theft.
"I can tell you that there aren't 100,000 carriers out there that I think any of us would be able to look at and say, 100,000 carriers are safe and should be out there on the road." Filter said.
While the dust is still settling after the Montgomery decision, he believes a large segment of carriers won't be able to qualify for liability insurance, or the costs will become prohibitive.
Werner said the capacity shakeup has created an opportunity to convert private fleets into dedicated customers as obstacles to asset ownership have intensified.
Driver availability issues have resurfaced and private fleets don't have dedicated teams to recruit and train. Many private fleets expanded during the pandemic and are now facing their biggest replacement cycle ever amid a high-cost equipment environment. Also, they have seen insurance costs continue to rise and now have to contemplate self-insurance as a means of managing liability risk.
Capacity the bigger hurdle to growth than demand?
Schneider is seeing stable demand with some pockets of strength. Minibid activity has continued as shippers "want to make sure that they are going to be protected in their most important season." However, it said demand is not the biggest hurdle to growth—it's capacity.
"Well, with the amount of supply that has exited, it has created enough demand for our services." Filter said. "We don't necessarily need more demand."
Werner Enterprises said demand among its mostly discount-retail and food-and-beverage customer base has remained steady from the second quarter to the third quarter. It is seeing elevated minibid activity from some of its one-way customers, and interest for its dedicated services has spiked.
Werner's outlook calls for a 10% to 13% year-over-year increase in one-way rate per total mile during the third quarter. The metric was 10% higher y/y in the second quarter, with fleet utilization improving 16% y/y.
The dedicated fleet (80% of its TL network) is forecast to capture a 3% to 5% y/y increase in revenue per truck per week for full-year 2026. The metric was up 5% y/y in the second quarter, and 8% higher, excluding FirstFleet, which it acquired in January. The dedicated segment has been achieving low- to mid-single-digit contractual rate increases in recent months.
Werner cited the potential for "strong" contractual rate increases in the upcoming 2027 bid season, which gets underway in the next 30 to 60 days. It will enter contract negotiations during the seasonally stronger shipping season when supply tightness will be amplified by the capacity drawdown.
Why it matters? Supply chain managers are facing dwindling carrier options as strict regulatory enforcement and soaring fuel prices constrict capacity. Consequently, shippers are face rising transportation costs, increased reliance on dedicated fleets and heightened competition to secure capacity for peak season.
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