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Market conditions may not be getting much worse. But there are fewer indications of things getting better. (WendellandCarolyn/Getty Images)

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The trucking industry continued to bounce along the bottom of the freight cycle with third-quarter earnings being generally weak, according to analysts.

“It was certainly mixed,” Citi analyst Ariel Rosa said. “Earnings were down year over year at all of the truckload carriers and three of the five [less-than-truckload] carriers. And so, certainly not a lot to get excited about in terms of the current environment. The question is more about what does the outlook look like. I think fourth-quarter outlook was still pretty weak.”

Rosa believes the question of when the market might fully rebound will stretch into 2025 and possibly 2026. He noted investors in the space right now are thinking about what the cycle inflection could look like and what the implications might be for earnings.

“The main difference in LTL is that industrial production is really weak,” Rosa said. “As long as industrial production remains weak, you’re probably going to see some limit on demand on the LTL side. And that’s really what you’ve seen, certainly volumes have not been great. The outlook for fourth quarter was not great.”

Rosa doesn’t believe the Yellow Corp. closure is still having a significant impact on LTL. The one exception, he noted, may be weight per shipment. But he also noted it’s difficult to separate how much of that is just the broader macroeconomy.

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“It was pretty poor,” Evercore ISI analyst Jonathan Chappell said. “You go back to the second-quarter earnings season, and I think there was some optimism coming out of that because June was a little bit better than many expected from a utilization and a pricing perspective. Then July started counter-seasonally strong as well.”

Chappell noted that market conditions aren’t getting much worse. But there are fewer indications of things getting better. He believes expectations were more optimistic earlier in the year because of trucking capacity exits and the earlier better-than-expected conditions. But that activity wasn’t signaling a longer-term trend.

“June and July were counter-seasonal in a good way,” Chappell said. “But August and September were counter-seasonal in a very bad way. It really confirmed a working thesis that we had through most of the second quarter, which was that there was a pull forward of imports and a pull forward of demand.”

Chappell pointed to ports on both coasts dealing with labor disruptions, the threat of a rail strike and rerouting associated with the Red Sea attacks as some of the reasons freight moved earlier than usual. But then freight slowed again heading into August and September. He also pointed out that it continued after the quarter ended with a seasonally soft October.

“From our perspective, the capacity overhang remains, the manufacturing sector is still soft, the consumer is a little squishy, to use our retail team’s terms,” Chappell said. “A long way of saying, softer than expectations, with probably a little bit more caution toward 4Q than many would have expected three months ago.”

The U.S. Bank Freight Payment Index noted the quarter marked the ninth consecutive quarterly decrease in shipments. But it was also the smallest drop in more than a year. The report noted that shipments were down 1.9% compared with the previous quarter, while spending dropped 1.4%.

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“As a whole, still a lot of earnings misses, maybe some in-lines,” Stifel Capital Markets analyst Bruce Chan said. “But it seems like, the effects of the trough are still very much upon us. I would say to the positive side there were some slight or very early indications that things are getting better.”

Chan pointed to upward positive momentum in contract renewals as one such early sign. But he has also seen the tenor of discussions between carriers and shippers change. He noted that a few quarters ago those talks centered on whether rates should stay flat or decrease. Now he has seen those conversations shift to whether rates should stay flat or increase.

“The market is still very much soft, and while we did see those early indications in this most recent quarter, we saw and heard similar things in the second quarter,” Chan said. “What’s become apparent is that, we’ve passed the trough, the market is stable and not getting worse. But neither is it getting materially better.”

Chan highlighted some differences between how the modes are performing. He views the LTL sector as probably being the strongest due to the greater price discipline, capacity consolidation and the lingering effects of the Yellow closure.

“Truckload probably has the most amount of excess supply,” Chan said. “So you know that industry continues to struggle under the weight of the overcapacity, and that’s having knock-on effects to other sectors like intermodal, and then certainly brokerage.”

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