The rise in vacancy rates in the industrial sector amid slowing demand and the wave of new supply, which will come to market over the next year, is the key macro trend for 2024, according to a new report from Cushman & Wakefield.
“The industrial market has seen its fundamentals shift over the past year as we have registered record new supply, moderating absorption totals, and climbing vacancy rates across many markets,” Jason Price, Senior Director, Americas Head of Logistics & Industrial Research, Global Research, US, Cushman & Wakefield, said in a company forecast video.
The trend stands out to Price mostly because the continued upward trajectory of vacancy rates should have occupiers finding a slightly easier market to navigate for the short term, coming off those record lows achieved in 2022, he said.
Despite this vacancy rate increase, the overall rate is expected to remain below the long-term 15-year historical average, Price said.
This will keep the industrial market on healthy ground, however, “the projected increase is something which won’t last too long as we expect vacancy rates to start to recompress in 2025,” according to Price, and “the climbing vacancy rates will also lead to more modest and sustainable rent growth in 2024 and beyond.”
Given the hot streak in 2020 and 2021, thinking long-term, context matters, according to Cushman & Wakefield.
From 1995 to 2019, the U.S. industrial vacancy rate averaged 8%. That recent industrial boom brought vacancy down to 2.8% in Q2 2022, which is more than twice as tight as the market had ever been.
Ever since, vacancy has moved higher, rising to 4.7% as of Q3 2023.
Cushman’s baseline has vacancy peaking in early 2025 at 6.2%, which would still be roughly 200 bps lower than the historical average.
US banks active in lending against warehouse and industrial real estate properties ramped up their exposure to the property sector significantly year over year as of Sept. 30.
Investors’ generally bullish view on industrial real estate in recent years, driven by the rise of e-commerce, has lost some steam in recent months amid worries about consumer spending and the potential for a recession.
In an Oct. 16 note, BMO Capital Markets real estate investment trust analysts said industrial property owners’ “enviable position of strength” at the beginning of 2023 has weakened as a result of economic uncertainty, while third-quarter net absorption in the sector — a measure of tenant demand relative to supply — was the weakest since the first quarter of 2011.
However, industrial lending remains a relative safe haven for banks paring back their exposure to office properties, a core commercial real estate (CRE) sector that has faced stronger headwinds amid persistent work-from-home trends.
Top lenders
Wells Fargo & Co., which has the largest disclosed warehouse and industrial loan book among US banks, raised its exposure by 25.4% year over year as of Sept. 30, according to S&P Global Market Intelligence data. Bank of America Corp., the second-leading lender in the sector, raised its exposure by 12.8% year over year.
Industrial and warehouse loans make up a relatively small percentage of gross loans at Wells Fargo and Bank of America: 2.6% and 1.4%, respectively. Several banks with a greater concentration in the sector also increased their exposure, including Heritage Financial Corp., where loans in the sector rose 9.7% year over year to account for 13.3% of gross loans. At First Busey Corp., industrial and warehouse loans rose by 11.1% year over year to account for 9.1% of total loans as of Sept. 30.
CVB Financial Corp., where industrial and warehouse loans were 25.7% of gross loans at Sept. 30, reported a 3.3% year-over-year increase in exposure to the sector.
At Commerce Bancshares Inc., loans in the sector increased 87.5% year over year, while at Pinnacle Financial Partners Inc., they rose by 53.5%.
Pinnacle Financial CFO Harold Carpenter said in an Oct. 18 earnings conference call that the quarter’s results reflect a “slightly more conservative appetite” for industrial and multifamily loans compared to the past few quarters.
Other lenders with sharp year-over-year increases included Prosperity Bancshares Inc., with a 35.7% gain, and BOK Financial Corp., with a 29.8% ramp-up in exposure.
Mixed outlook
Observers of industrial real estate see mixed signals moving forward. In an Oct. 20 note, Morgan Stanley analysts observed rising concerns of slowing demand and rent growth in the sector. Prologis Inc., the largest publicly traded company in the sector, predicts that new supply will outpace demand over the next three quarters before that trend reverses in the following three quarters, they wrote.
Wedbush analysts argued in an Oct. 22 note that the pace of new construction starts in the sector may be slowing — a positive sign for existing property owners — while there is ample room for rent growth beyond current levels. Despite some observers’ concerns that the long-term rationale for warehouse sector growth is slowing, Wedbush sees positive forces driving online grocery shopping and recent retail sales data has been strong, they added.
In an Oct. 25 earnings conference call, BOK Financial executives predicted a tempered approach to CRE lending, noting that their exposure to the sector is at the upper end of their target range.
“We expect that we still have room for modest growth in that next year, but it’s not going to be at the double-digit rate that we’ve seen year over year in CRE so far,” Mark Maun, the company’s executive vice president for regional banking, said. “We are focused on multifamily and industrial. That’s where the growth has been. We don’t see those markets slowing down too much. We’re not focused on retail and certainly not on the office piece.”
Hope Bancorp Inc., where industrial and warehouse loans totaled 8.8% of gross loans at Sept. 30, bucked the general trend with a 1.3% year-over-year decline in loans to the sector.
American consumers just keep on spending — and the volume of containerized imports keeps on rising. October import numbers released Tuesday by Descartes came in exceptionally strong.
The U.S. imported 2,307,918 twenty-foot equivalent units of containerized goods last month, according to Descartes Systems Group (NASDAQ: DSGX), which obtains its data from customs filings. That’s up 3.9% year on year and 4.7% compared to September.
Imports have surged 33% from their recent low in February. October’s inbound volumes were the highest since August 2022, back when volumes were still inflated by the one-off pandemic boom.
It was the third best October ever for the U.S. imports, with the exception of the boom-inflated months in 2020 and 2021.
China continued to be the top driver of inbound volumes. According to Descartes, America imported 886,842 TEUs of containerized goods from China in October, 38.4% of total imports and the highest volume from China since August 2022.
Volume up vs. pre-COVID years
This year’s imports continue to outpace volumes in the years prior to the pandemic.
Descartes put October’s imports 11.5% above imports in October 2019, 2.5% higher than in October 2018 and 15% higher than in October 2017. (In 2018, importers brought in shipments early to avert the Trump administration tariffs, hiking fall 2018 volumes at the expense of fall 2019 volumes.)
Total imports in January through October of this year were up 3.4% versus the same period in 2019, 4.4% versus 2018 and 11.8% versus 2017.
Trans-Pacific rates strengthen
Meanwhile, trans-Pacific spot rates have strengthened recently and remain within the normal pre-COVID range.
The Drewry World Container Index (WCI) assessment for spot rates from Shanghai to Los Angeles was $2,175 per forty-foot equivalent unit in the week ending Thursday, up 11% versus the prior week.
Current rates in this lane are 20% below the WCI assessment in 2018, when rates were inflated by the tariff effect, and 38% above 2019 levels, when rates were depressed because imports had been pulled forward by tariffs. The Shanghai-Los Angeles index is currently 33% above 2017 levels.
The WCI Shanghai-New York spot index was at $2,616 per FEU in the week ending Thursday, up 3% from the week before.
It was flat versus 2019 levels, down 24% from tariff-boosted 2018 levels and up 9% from the same time in 2017.
For most companies in general, and in CRE in particular, making cutting edge use of artificial intelligence is still a distance off.
But Blackstone seems deep in, according to an interview that John Stecher, chief technology officer, gave to PE Hub. From what he said, and what he didn’t, there’s a lot to learn.
For example, he noted that what the company is using goes far beyond generative AI like ChatGPT. With the current hype, it’s easy to forget that the early days of artificial intelligence go back to the 1950s. There are many variations of the technology, including older approaches like rule-based and expert systems but also deep-learning systems that can keep improving their performance as they get more data to incorporate.
But sometimes the older and more limited types of AI are the best ones for a particular application. Other times, not. It is critical that a CRE company looking to incorporate AI has enough internal expertise or access to outsiders who can provide it as consultants to property match the tech to the application. Often, AI might not even be in the running.
On a large scale, making it work could be expensive. Stecher mentioned that Blackstone used one big resource it had access to, which was QTS Data Centers, a data center provider that the company acquired in 2021 for about $10 billion, including debt.
Stecher said that Blackstone thinks generative AI could improve dealmaking by letting analysts more quickly and easily go through large amounts of data and then cut the time needed to evaluate deals. However, there was an interesting jump from question to answer. PE Hub specifically mentioned ChatGPT while Stecher didn’t mention the specific product.
That was probably because ChatGPT doesn’t necessarily have access to all the data that a company might want to use. Generative AI would have to be trained on the type of data being analyzed. If a company has enough data in its possession to do the training, that would be possible. But if not, where does it come from? There may be little chance a software tool uses the same types of data you need. Provide your data to a third party and you need enough legal protection to be sure the information remains safe and available only for your use. For its investment process, Blackstone is building the product in-house. That is likely an expensive and complicated task.
Guggenheim Investments thinks investors should look past the carnage in bonds and gear up for the Federal Reserve to pivot to rate cuts.
While the investment team expects the Fed to leave its policy rate unchanged at a 22-year high of 5.25% to 5.5% over the next several meetings, they also see a recession as likely in the first half of 2024.
That backdrop could spark a quick Fed pivot “to rate cuts, ultimately cutting rates by around 150 basis points next year and more in 2025,” said Matt Bush, U.S. economist at Guggenheim, in a client podcast published Monday.
“We have them taking the fed funds rate down a bit below 3% and pausing balance-sheet runoff in what we think will be a recession, albeit a mild one,” Bush said.
Fed Chairman Jerome Powell last week signaled that the sharp rise in longer-duration Treasury securities recently might be doing some of the central bank’s inflation fighting for it, sparking hopes that there might not be a need for additional rate hikes in this cycle.
In a twist, however, the 10-year Treasury yield BX:TMUBMUSD10Y fell sharply last week from a recent peak of 5%, before rebounding on Monday, mimicking earlier volatility in the $26 trillion Treasury market that has kept the Fed and investors on their toes in 2023.
With that backdrop, the team likes agency mortgage-backed securities returning roughly 6%, structured credit kicking off about 8% to 9% on A-rated debt and segments of BB-rated high-yield offering about 9%, all higher-quality parts of credit markets.
“We’re frankly not getting paid enough to reach further down the capital structure,” said Adam Bloch, a portfolio manager with Guggenheim’s total return team, adding that they are keeping 20%-30% in “dry powder” across most of their strategies to take advantage of any stress ahead.
Parent company Guggenheim Partners has about $218 billion in assets across fixed-income, equity and alternative strategies.
“It’s obviously been very painful to get to the point where we are today in fixed-income markets and across the yield spectrum,” Block said, while adding that “It’s kind of like the famer who stumbles upon a burned-out forest after a wildfire, and all he sees is farmable land.”
“We’re focused on, again, locking in these record-high current yields, and we broadly think that’s what investors should be doing, too.”
The stock market rallied for a sixth straight session on Monday, with the Dow Jones Industrial Average DJIA and the S&P 500 SPX booking their longest streak of gains since June and July, while the Nasdaq Composite COMP scored its seventh consecutive day of gains.
Industrial Realty Group has secured a ground lease for roughly 400 acres at the Atlantic City International Airport where it plans to build a mixed-use logistics project in the southern part of the Garden State.
Based in Los Angeles and billing itself as one of the largest industrial real estate developers in the nation, Industrial Realty said it reached an agreement with the South Jersey Transportation Authority to lease the large parcel on the northwest corner of the airport, which is located in Egg Harbor Township, New Jersey. As part of the deal, Industrial Realty and the authority have agreed to work cooperatively on the new construction, the company said in a statement on Tuesday.
Industrial Realty is “planning to build a mixed-use, industrial development to potentially include air cargo, rail and over-the-road (tri-modal),” a company spokeswoman said in an email to CoStar News on Wednesday. Renderings of the development weren’t available.
“IRG has a wealth of experience in the aviation segment of commercial development,” Stuart Lichter, the developer’s president, said in a statement. “We have already discussed site opportunities with many job-creating tenants. We believe this momentum will continue to grow because of the property’s location and airport proximity.”
For several years now New Jersey has been a hotbed for warehouse development because of its central location within a highly populated area, situated between New York and Philadelphia, and its proximity to major airports and seaports. Meanwhile, the Atlantic City airport has been in the local news recently because of a controversial proposal by the Biden administration to use the site as a place to house immigrants.
Industrial Realty said it has also been working with the Atlantic County Economic Alliance on the agreement, and added that the project “could stimulate tens of millions of dollars in new private investment in the region.”
In July last year, the South Jersey Transportation Authority authorized its executive director, Stephen Dougherty, to enter negotiations and execute an agreement for the development of the northwest quadrant of the airport. The lease is the culmination of efforts stemming from that authorization.
“We could not have found a better partner to make this project a reality,” Dougherty said in a statement.
The proposed industrial development could also help Atlantic County move toward its goal of diversifying and strengthening the economy in the region, moving beyond gambling and tourism, according to local officials. Industrial development has been a key component of regional master planning and the Atlantic City airport for a decade, officials said.
“This agreement is conducive with our efforts to explore the development of an air-cargo-maintenance-and-repair facility that could result in hundreds of short-termconstruction jobs and many more long-term jobs,” Atlantic County Executive Dennis Levinson said in a statement.
Industrial Realty’s forte is the conversion and privatization of federal properties. The company owns and serves as the master developer of three closed military bases, a former NASA manufacturing facility and a closed Veterans Affairs site.
Cushman & Wakefield is no longer handling Brookfield Asset Management’s office and logistics listings in the U.S., according to a report by Bloomberg. The move comes at a tenuous time for C&W and other CRE brokerages as they struggle to maintain revenues until the industry makes an expected recovery in the second half of next year.
Bloomberg said the brokerage was fired after it declined to shift some of its offices to Brookfield’s redeveloped 660 Fifth Ave. from 1290 Avenue of the Americas. The publication cited a source that was familiar with the matter.
GlobeSt.com reached out to C&W and BAM for comment after hours and will update this article with their responses.
Like its counterparts, C&W has had to take several steps to maintain its business in the face of plummeting transactions and an uncertain business environment.
Its third quarter revenue of $2.3 billion was down 9% over the same period in 2022. Property, facilities, and project management were flat while leasing, capital markets, and valuation and other declined 16%, 33%, and 17% respectively. There was a net loss of $33.9 million.
The company has focused on paying down debt to reduce leverage to between 2% and 3%, as well as reducing expenses by a target of $130 million annually. C&W has already realized $98 million year-to-date and is slightly ahead of where they planned to be, according to its CFO.
Losing Brookfield Asset Management as a client was no doubt a blow given the firm’s outsized real estate footprint. It has more than 500 million square feet of commercial real estate.
“While completely surprised by this reaction, we consider disciplined management in the best interest of our firm, employees and shareholders,” C&W spokesperson Mike Boonshoft told Bloomberg.
Brookfield declined to comment to Bloomberg.
Ohio resident Matthew James Collins hauls frozen food around the Midwest — onion rings, ice cream and the like. On a recent October morning, Collins was trucking through a snowstorm in Minnesota.
He wasn’t carrying much. Collins recalled when he ran this route last year, he would regularly move 22 skids of frozen foods (a type of pallet) for four different corporate accounts. Now he’s moving just 12 skids for two clients.
The health of the trucking industry is typically a good gauge for how the U.S. economy at large is faring. That’s not the case right now. Economists remain stunned by how much stuff Americans are buying amid historic inflation and interest rate hikes. At the same time, the trucking industry is embroiled in a meltdown that’s slamming operators large and small.
“It doesn’t even seem like the broader economy even knows we’re in a recession,” said Steve Troyer, president of California Midwest Xpress, a 30-truck fleet. “But we’re in a good one.”
Americans are spending a larger chunk of their income on durable goods than they did before the pandemic, according to Goldman Sachs research. The U.S. economy saw “blockbuster” growth in the third quarter of 2023; it was the biggest surge in nearly two years, and attributed in part to increased consumer spending. Around 72.6% of the nation’s freight by weight is hauled by semi-truck. If Americans are buying so much, why aren’t truckers seeing a boon?
This trucking bloodbath is particularly gory
Trucking is a highly cyclical industry. During good times, manufacturers deliver more equipment to trucking fleets that want to expand and capture that surfeit of business and profits. Individuals open their own trucking fleets too.
The boom time typically lasts for under a year. Inevitably, so much capacity enters the industry and depresses rates again. Whatever trend outside of trucking that was spurring all of that new demand usually runs dry too. That means too many trucks and not enough freight to move.
The federal government tracks the number of trucking authorities created or shut down every month. Authorities are often put out of service after they fail to pay insurance premiums. In typical upcycles, a few hundred net trucking authorities are created, then a few hundred net trucking authorities are destroyed when the market flips less than a year later.
The most recent freight upcycle quashed that pattern. The upcycle began around June 2020, when the federal government approved about 500 net trucking authorities. That reached a fever pitch in the summer of 2021, when around 2,000 net trucking authorities were created in a single month. It wasn’t until June 2022 when the cycle turned and net trucking authorities flipped back to negative.
The pandemic trucking boom lasted twice as long as a typical upswing. And each month created many times more trucking companies than a typical red-hot trucking month.
Ther’s still a massive excess of trucking authorities, according to federal data. In January 2020, there were around 255,000 authorities. Now there are around 363,000 authorities. Most of these businesses are small fleets with fewer than 10 drivers.
Tens of thousands of those new carriers have already shut down. According to a FreightWaves analysis of federal data, an estimated 35,000 new trucking companies shuttered in the fiscal year ending Sept. 30. For the 10 years before that, the average number of out-of-service orders was 15,585.
Average per-mile spot rates for trucking fleets have hit $1.54, down 11.6% from 2022 and 34.4% from 2021, according to the FreightWaves National Truckload Index. At the same time, the costs of fuel, replacement parts, insurance and other key inputs have soared.
Brian Carle, a New Mexico truck driver who has his own authority, said jobs are so scarce and poorly paid right now that he has to save up just to get an oil change. His gross earnings this year will be about 33% less than they were in 2021 — but the cost of everything, like repairs, diesel and routine maintenance, has soared.
“Everything I’m paying for, I’m not getting paid more for,” Carle said. “Something’s gonna break.”
Reflecting that, trucking carriers are only rejecting some 3.5% of contract loads, according to the FreightWaves Outbound Tender Reject Index. That’s even lower than 2019 and 2022, two challenging years for truckers.
“We’re going to have to see trucks leave the market for rates to come back down,” said Collins, the Ohio truck driver. “We also need a stronger economy for rates to come back up.”
American consumers are buying stuff again. Woo-hoo!
The U.S. economy grew faster than expected in the third quarter of 2023. At 4.9%, it was the biggest uptick since the fourth quarter of 2021. Much of that boost came from increased purchases of durable goods; new orders for durable goods are up 4.4% so far this year compared to 2022.
For this increase, thank the slowdown of inflation — and the relentless American urge to go on a shopping spree.
“When the economic history of the early 21st century comes to be written, the opening sentence in a bold font should be ‘never go short the hedonism of the US consumer,’” wrote Paul Donovan, UBS global chief economist, in a note last Friday. “Middle-income consumers have lower inflation than consumer price data implies, giving them more spending power.”
Americans are still buying a lot of stuff, despite the Federal Reserve’s attempts to curb spending and corporate zeal to increase the price of everything. Joseph Politano, author of the financial newsletter Apricitas Economics, said continued strong spending reflects the strong labor market.
“The vast majority of people spend a fixed portion, which is the majority of their income, on things,” Politano said. “Over the last year, you have 3.2 million new jobs and employment rates at a very high level. It shouldn’t be too surprising that spending is remaining strong under those conditions.”
Spendy American consumers are’t saving trucking
No one expected the 2020 to 2021 spending spree to last.
“You had like those insane months where there was a million new jobs and spending growth was 9%,” Politano said. “Obviously, no one ever expected that to [last] forever.”
However, that didn’t stop more than 100,000 truck drivers from opening up their own trucking companies. And while it’s easy enough for the American consumer to scale up or scale down their spending, truck drivers can’t turn on or off their level of capacity as seamlessly.
The only level of freight demand that could support that “excess” trucking capacity is one that matches the Great Shopping Spree of 2021. That level of consumerism — where more than 100 container ships are waiting to unload at the ports of Los Angeles and Long Beach, full of stuff purchased with stimulus checks — was likely a once-in-a-lifetime event.
Analysts believe that the trucking industry will only become healthy again when a significant chunk of those authorities are cleared out. That likely means the collapse of tens of thousands of trucking businesses, even beyond the tens of thousands that have already shut down.
For his part, Carle, the New Mexico truck driver, isn’t keen on closing down his business. “I don’t want to give up what I’ve worked so hard for.”
U.S. logistics market data is sending mixed messages as certain industry segments respond to near-term uncertainty while continuing to prioritize supply chain optimization for the long-term. Here are three important trends to know about logistics real estate.
- Activity levels correspond with growth in logistics real estate demand. Our Industrial Business Indicator (IBI™) remained steady in October at 57.3, in line with the Q3 average, reflecting continued strength in consumer spending and growth in the flow of goods.
- Logistics real estate dynamics remain tight in most markets. The national vacancy rate remains very low, 4.8% vs. a historical expansionary average of 6.1%, even as the pace of new deliveries quickened and added 70 bps to market vacancies.
- Significant rental rate increases upon lease expiration will remain the norm, even as market rent growth normalizes from its blistering pace of 2021/2022. U.S. rent growth totaled 85% from 2019-Q3 2023, which will continue to produce steep rental rate increases for customers upon lease expiration.
DEEPER DIVE:
As macro factors intensified, timelines for decision making extended. As interest rates climbed, customers increased scrutiny of CapEx spend and inventory carry. This slowed the pace of leasing, pulling down realized net absorption to 42 million square feet (MSF) in Q3 from 49 MSF in Q2, even as the volume of requirements in the market remained elevated compared to historical trends.3 However, October’s IBI Activity Index reading of 57.3 corresponds with an annual demand run rate of 175 MSF, indicating the ongoing need for network expansion.
A rapidly emptying construction pipeline opened leasing opportunities in select markets and submarkets. New logistics space deliveries totaled 121 MSF in Q3, reflecting the large number of projects started in 2022. Market vacancies rose to 4.8% in Prologis’s U.S. markets, up 70 bps since the previous quarter but still well below historical averages in most markets. Increased availabilities will be concentrated in specific size segments and locations, given that more than half of the pipeline is in just eight markets.
We expect the window to act on the increased availabilities will be short, as speculative construction starts declined to the lowest level since Q2 2020. Replacement cost rents (or the rent needed to justify the cost and risk of development) increased in Q3 as materials and labor costs remained high, capital costs increased, and construction lending conditions tightened. As a result, Q3 speculative starts were down 65% from peak levels and continue to fall. Given this pattern, customers could face renewed scarcity in H2 2024 and beyond. Market rent growth outpaced inflation in aggregate, with divergence by market. We expect approximately 7% growth in 2023, as rents in many markets are on pace to increase by 10% or more in 2023; however, there are a handful of sizeable markets with flat or declining rents, including Southern California, Houston and Indianapolis. Logistics real estate occupiers should face a steep rental rate increase upon lease expiration over the next 12 months as U.S. rent growth totaled 85% from 2019 to Q3 2023, with wide variation by market. Vacancies are poised to peak at a historically low level in mid-2024. Our forecast calls for 195 MSF of demand in 2023 compared to 490 MSF of new supply, pushing the vacancy rate up to 5.4% at year-end. Looking ahead, the sharp decline in starts in 2023 will translate to a low level of deliveries beginning in H2 2024 and continuing into 2025, which should put renewed downward pressure on the vacancy rate.
CONCLUSION
The U.S. logistics real estate market is under-going a “mini cycle” that reflects a balance between short-term cyclical uncertainty and long-term adaptation to the future of retailing and supply chain demands. Customers are still expanding their real estate footprints, albeit at a normalized pace compared to the frenzy of 2021 and 2022. Some leasing activity is being delayed until 2024, and next year’s deliveries are poised to fall sharply, which should re-introduce scarcity to many markets. As a result, we recommend that customers act quickly to take advantage of increased availabilities.
Companies struggled with operating ratios in Q3 amid sluggish demand, according to earnings reports.
Knight-Swift Transportation Holdings, P.A.M. Transportation Services and Marten Transport experienced truckload difficulties in the metric, following bountiful demand last year, as the market put further sequential strain on carriers.
“Our earnings this quarter were significantly pressured by the industry-wide weak demand, cumulative impact of reduced freight rates with the resulting freight network disruption, and inflationary operating costs within the current freight market recession,” Marten Executive Chairman Randolph Marten said in an Oct. 18 earnings release.
Truckload operating ratios for Knight-Swift and P.A.M. as well as Marten’s overall business remained above 90%. Companies are striving to lower these rates to make better use of capital, and Knight-Swift is aiming to achieve that reduction by 2026 given its acquisition of U.S. Xpress Enterprises.
Carriers’ operating ratios remain high
Quarterly metrics since 2022, focusing on truckload.
Even when Knight-Swift excluded U.S. Xpress, its truckload operating ratio was 91.5%, CEO and President Dave Jackson noted in an Oct. 19 earnings call.
“We are just simply not comfortable with an OR that starts with a nine and our people are working with urgency to do all that we can,” Jackson said.
In other segments for Knight-Swift, adjusted operating ratios were mixed. The metric was 93.3% in logistics, 104.5% in intermodal and 84.9% in LTL, per an earnings presentation.
Operating ratios by trucking companies showed that this year, Knight-Swift’s truckload segment and Marten continue to worsen from Q1 onward, reaching their worst rates in Q3.
In contrast, P.A.M.’s worst operating ratio for truckload this year was in Q1 at 99.3%, and its best quarter for the metric was in Q2 at 92.7%.
“The third quarter of 2022 was one of the best in our company’s history while the third quarter this year was faced with an unprecedented unfavorable truckload market,” P.A.M. President and CEO Joe Vitiritto said in an Oct. 18 earnings release.
Despite the results, Vitiritto said in the statement that the company saw improvement in factors that the business believes will benefit the company when the market changes.
The persistent drag was in contrast to booming quarters last year. Knight-Swift dropped under 80% for its adjusted operating ratio in truckload last year for quarters in H1, and Marten reported its best operating ratios as a publicly traded company during that time.
By David Taube