The truckload industry's downturn is "closer to the end than the beginning," according to Werner Enterprises' Chairman and CEO, Derek Leathers. Despite ongoing rate pressure in the current bid season, Leathers remains optimistic about the market's future.
A Turning Point Ahead
Leathers believes that most shippers realize that the depressed rate cycle is nearing its end. Werner has been "pretty firm" in recent negotiations, with little margin left to surrender after several years of above-normal cost inflation. The company's pricing guidance calls for revenue per truck per week in the dedicated segment to be flat to up 3% year over year in 2024, and revenue per total mile at the one-way fleet to drop 6% to 3% year over year in the first half.
Positive Catalysts
Leathers cites several positive catalysts for demand, including higher import volumes, multiple quarters of inventory "right-sizing," and a consumer spending mix of goods and services getting back to a historical balance. Werner also has internal initiatives that should boost earnings when the cycle improves.
Cost Savings and Efficiency
Werner has implemented 43 million in cost savings programs last year and has an additional 40 million pegged for this year. Roughly two-thirds of the expense reductions are sustainable, with the remaining reductions likely reversed when the market turns. The company reiterated its TL operating margin guidance of 12% to 17% throughout the cycle.
One-Way Fleet Improvement
The one-way fleet is seeing improved equipment utilization, with revenue per tractor per week up 6% year over year in the first quarter. Miles per tractor increased 11%, while the unit's truck count fell 13%. The utilization improvements are expected to produce more pronounced results in a better rate environment.
Dedicated Unit Growth
The dedicated unit has seen truck counts decline at the account level throughout the downturn. As the market improves, existing accounts will begin to require additional units. Unit growth at existing accounts produces better margins versus new accounts, which have startup costs.
Used Equipment Gains
Werner is achieving its normal threshold of gains on the sale of tractors and trailers, but this is due to overall earnings being depressed. Used equipment prices have weighed on gains, but the company believes that future emission mandates will boost used values. Werner also expects to see above-market returns as it leverages its proprietary fleet sales group to move the equipment.
Conclusion
Werner Enterprises sees better days ahead, with a turnaround in the truckload industry's downturn on the horizon. The company remains optimistic about the market's future, citing positive catalysts for demand and internal initiatives to boost earnings. With a focus on cost savings and efficiency, Werner is well-positioned to capitalize on a improving market.
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