Schneider: Freight recession and costs bite hard

November 16, 2023

By Transport Intelligence

A combination of unsustainably low road freight rates and cost impacts helped US trucking giant Schneider’s Q3 operating income fall by 68% y-o-y to $46.7m. At the same time, revenues dropped 19% to $1.35bn. CEO Mark Rourke said, “Recent shutdowns of a few competing brokerage operations reflect the unsustainable nature of current pricing”.

Rourke added that the current US freight recession is in “a period we believe represents the most challenging phase.” The company saw high double digit falls in earnings across all of its segments:

• Truckload saw a 70.6% y-o-y drop of $24.5m
• Logistics, 69.5% fall to $8.5m
• Intermodal was also in the high double digit drop range of 64.3% to $11.1m

Revenue falls ranged from 6.3% in the Truckload segment to 29.8% in the Logistics segment.

Bright Spots – Dedicated and Logistics

Despite the uncertain times, Schneider has been in an inorganic growth phase as it prepares for what its leadership hope will be an ending to the current freight recession. Thanks to two recent acquisitions, Schneider’s dedicated truckload operation now has 6,800 tractors. Rourke said, “With the addition of M&M Transport this quarter, dedicated now comprises over 60% of our Truckload fleet.”

Another element of cheer for the CEO was the Logistics & Brokerage segment that still took a beating from competition. He said, “brokerage volumes and contribution margins are under pressure from intense competition. [However] while challenged, our contract logistics and brokerage business remains soundly profitable.”

Expenses – a Triple Hit to Earnings

In the earnings call, Rourke pointed out three big expenses problems that don’t usually affect the business at the same time. The first was a sharp hike in fuel costs since Q2. He said, “It was a notable negative factor in the third quarter compared to the previous quarter.”

America’s economy isn’t in the best shape, and this is behind the freight recession. Consequently Schneider was hit by “a combination of customer bankruptcies and uncollectible receivables…[that] resulted in meaningful expenses,” according to Rourke.

A third hit in terms of expenses was the used equipment market, leading the CEO to point out “equipment gains were lower on a sequential basis”. This meant lower resale income from trucks and trailers that were originally bought new by the company.

Since the fourth quarter of last year, Schneider’s leadership has been looking at managing controllable costs. Rourke pointed out though, “A growing portion of the network book is not at compensable rates and therefore unsustainable due to the remaining inflationary cost impacts of wages and equipment replenishment.”

Ongoing Pressure on US Trucking Companies

A series of recent bankruptcies in the industry shows that the US freight recession is continuing to bite hard. Schneider isn’t unusual among trucking and logistics companies continuing to trade, in seeing high double digit drops in earnings. Trucking companies are hit with a combination of high costs and low spot rates. The CEO’s remark that current spot rates are unsustainable is indicative that even the largest players are feeling the pinch. A variety of factors need to come into play to remedy this, not least greater consumer confidence and spending that will ultimately drive the whole economy out of its downward cycle.

---