J.B. Hunt a bit more upbeat

Management from J.B. Hunt Transport Services was slightly more positive on the freight environment Wednesday, saying the market is “coming out of a freight recession” as opposed to being in one.

J.B. Hunt’s (NASDAQ: JBHT) customers have largely completed an inventory destocking, according to President Shelley Simpson, who made the comments at a Morgan Stanley (NYSE: MS) investor conference in Dana Point, California. She said customers are “cautiously optimistic,” with some indicating freight volumes will be up slightly in the back half of the year.

Simpson said she’s a little more cautious on the outlook than J.B. Hunt’s customers but said internal planning assumes a trajectory that will be “slow and steady up.”

The comments sent shares of JBHT 4.1% higher on the day compared to the S&P 500, which was up 0.1%. The remarks also lifted shares of truckload carriers Knight-Swift Transportation (NYSE: KNX), Werner Enterprises (NASDAQ: WERN) and Schneider National (NYSE: SNDR). The three companies closed Wednesday 3.6%, 3% and 1.6% higher, respectively.

On Tuesday, executives from Schneider and Werner said the market was becoming more balanced, voicing a similar summation of customer inventories as well as the expectation that TL capacity shrinks. The companies said smaller carriers have burned through cash positions and face continued inflation, including diesel fuel prices that are up 20% since early July.

J.B. Hunt’s management team said flattish inventory actions are expected moving forward given tepid demand and higher inventory carrying costs (interest rates and real estate lease expenses).

“I think our customers have their inventories right-sized and they’re going to make sure that they’ve got not just resiliency in their supply chain but agility in their supply chain to keep that inventory flowing,” said Spencer Frazier, EVP of sales and marketing at J.B. Hunt.

Intermodal demand remains pressured as inbound containers to the West Coast are still down year over year (y/y) by large percentages. Intermodal containers on the Class I railroads are off 8% y/y so far in the third quarter, but J.B Hunt has been taking market share in recent quarters, outperforming the broader trend.

Management said rail service has improved and noted it was successful winning share in the recent bid season, which ends in September each year.

The company has a goal to grow its container fleet to as much as 150,000 units over the next two to four years. It ended the second quarter with nearly 116,500 units although roughly 18% of the fleet was idle in the period due to soft demand. Management believes if there is stability in rail service that freight being moved on the highway will convert to rail over time given favorable long-term cost dynamics and environmental benefits.

Management also noted cost pressures in its dedicated unit are abating. It was forced to extend tractor trade cycles during the peak due to production challenges at the OEMs. It also saw increased downtime across its fleet due to issues procuring parts.

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