Federal regulatory changes such as tougher English language proficiency initiated last year are pushing capacity out of the market, Knight-Swift Transportation Holdings CEO Adam Miller said Wednesday on an earnings call.
The juggernaut trucking conglomerate has seen a sharp tightening in capacity that’s helping address unsustainable rates and non-compliant carriers, Miller told investors on a Q1 earnings call. Regulatory changes are helping bring declines in capacity and more favorable market conditions, and those effects are in the early stages, Miller said.
“The improvement we're seeing,” Miller said, “is driven largely by capacity reduction versus demand.” Other stakeholders describe the changing dynamic as a supply-driven turnaround in the freight market.
Among those changes, the industry has seen the Federal Motor Carrier Safety Administration crack down on non-compliant CDL schools, and congressional proposals have come forward such as Dalilah’s Law, which could codify tougher standards on non-domiciled CDL issuances and renewals.
“It certainly feels like the setup is there” to support sustainable rates for quality, compliant carriers, Miller said.
While Q1 revenue improved 1.4% year over year to $1.85 billion, operating income fell 57.1% to to $28.6 million, the company reported. Adjusted operating incoming was $49.8 million, reflecting setbacks the company identified last week with adverse LTL claims development, weather and diesel prices.
Additionally, there are early signs that demand is starting to improve. Bid targets have shifted to a new range of high single to low double-digit percentage increases from current pricing. That’s up from last quarter’s range of low to mid single digit targets.
Furthermore, multiple shippers have initiated discussions about peak season demand support, which is not typical this early in the year, Miller noted.
“There are now more reasons to be optimistic about our industry than we have seen in over four years now,” Miller said. He also said the industry is shifting away from the influx of carriers in one-way freight, where a surge in players to the market operated under different rules with distorted pricing.
As spot rates surged in 2021, many drivers joined the industry without the proper training, and that problem was also coupled by newcomers with questionable safety and industry players with harmful business practices as chameleon carriers, Miller said, referring to industry players that can change their identity, such as by shutting down and reemerging to avoid accountability for violations like safety issues.
“I just think there's going to be a lot more oversight from the FMCSA ... that’s needed,” Miller said.
