The Transport Dive Outlook on 2022

Looking back at 2021 as a whole, it's difficult to compare it to any other year. The supply chain world is imploding and will soon sink into Middle Earth, right?

Well, if you look in your rearview mirror, you'll find evidence that the woes of today are the same woes of our yesteryears.

Consider the driver shortage: The mainstream media and the pronouncements from Capitol Hill paint a very dire picture. And how about infrastructure and fuel prices? I don't have to tell you that our roads and bridges didn't start crumbling yesterday.

During a session at the American Trucking Associations' Management Conference & Exhibition last October, panelists discussed when the supply chain would get back to "normal."

Prognostications included "mid-2022" and "Q4 2023." But one panelist responded that she hoped we would never get back to what we considered "normal" before this latest crisis.

"In my mind, we shouldn't go back to normal, because normal isn't working right now," said Gail Rutkowski of the National Shippers Strategic Transportation Council.

I whole-heartedly agree with her. The future doesn't have to be what it used to be, to paraphrase baseball great Yogi Berra.

Woes of our yesteryears

We scramble through crisis after crisis and never get to the real fixes before being faced with more. To me, that's what Rutkowski was talking about.

Here are three of the prominent crises I've heard time and time again:

Driver and capacity constraints

The American Trucking Associations' chief economist, Bob Costello, said the driver shortage could hit 160,000 over the next decade if current trends persist.

It sounds severe, but six-digit predictions from the ATA like that have been staples for as long as I can remember. I've heard this gloom and doom discussed at every transportation conference I've attended since 1999.

Speaking strictly about LTL, we always run short of all things capacity. It's the way operations have always been planned and executed. You never staff to handle peaks and surges; you react and flex to them.

That means you are perpetually in need of drivers, doors, trailers, tractors, fifth-wheel grease and so on during periods of abundance. And that's a good thing, provided your people have a plan to flex up when needed.

Traffic and infrastructure problems

Congestion has also become a staple of the trucking industry. Billions of dollars have been lost to traffic congestion and road closures for many years.

Perhaps we'll see some improvement in the not-too-distant future, once funds from the federal infrastructure spending package start being doled out. Whenever that starts, it won't be a day too soon.

Were it not for the excellent routing technology that is available in today's market, infrastructure-related losses would be much greater.

Soaring fuel prices

Over the years, diesel and gas prices have fluctuated like Texas weather. The latest spike, thankfully, has eased somewhat. But rest assured that we'll be complaining about high prices again before too long.

Is the driver shortage a company problem or an industry problem? Is poor infrastructure a company problem or an industry problem? Is the fuel crisis a company problem or an industry problem?

If your answer to all of these questions was the latter, then what, as an industry, are we going to do to resolve them?

Beyond the forklift

I'll admit to being a bit of a here-and-now kind of person. But I find future-looking conversations about autonomous and electric vehicles fascinating. The industry should continue to look for innovation in all things trucking.

In an industry whose greatest innovation for so many years was the forklift, certainly there is room for improvement.

But while we're looking ahead and planning for tomorrow, doesn't it make sense to place equal focus on things that can be brought to reality sooner?

An important message for us to take into this near year is that none of the issues mentioned are novel, even in these unprecedented times.

We have been through these crises before, and the industry has always worked through them — sometimes with confident strides and other times stumbling steps.

Transportation is the heartbeat of the economy, trucking being the essential component. I think with that kind of power, the trucking industry is in an enviable position to dictate rather than react.

Otherwise, 22 will be "déjà vu all over again," as Berra said.

As e-commerce continues to rocket, warehouses hit capacity and many new ones pop up, 2022 promises to be a year when truckload companies take a longer look at their middle-mile siblings, the LTL carriers.

"We see a lot of buzz going on" in the M&A market pertaining to LTL, said Nikhil Sathe, managing director of Logisyn Advisors.

And the reason is simple: Many of the largest TL carriers are publicly traded — and flush with cash — and they need to invest in their business in a way that will please shareholders, their profit-minded owners. LTLs provide that growth opportunity.

"LTL margins are better than TL margins," said Sathe.

Better margins, bigger growth

LTL is less cyclical, Knight-Swift CEO Dave Jackson told investors in July after it plunked down an eye-popping $1.35 billion for AAA Cooper Transportation, an Alabama-based LTL carrier.

Seemingly happy with its LTL strategy, Knight-Swift acquired an LTL carrier from the Great Plains and Midwest, RAC MME, for $150 million in December. RAC MME is the parent company of Midwest Motor Express and Midnite Express, which are referred to as one entity called MME.

Knight-Swift officials said the "MME regional footprint complements our current Southeastern and Midwestern LTL presence." The acquisition reflected Knight-Swift's ambition to build "a nationwide LTL footprint, leading to the further diversification of our revenue streams."

Sathe attributed the recent M&A interest to e-commerce.

E-commerce changed middle-mile logistics, prompting the expansion of LTL. Shipments that may have once required one TL move are now being broken up into smaller quantities of freight that need to be moved more frequently.

"LTL is the gateway to e-commerce," said Sathe.

Sathe said he has never seen such a transport market ripe for growth and M&A. E-commerce is growing at a "phenomenal rate," which Logisyn Advisors doesn't see slowing down in 2022.

That puts money into the coffers of many big TL carriers, who are eyeing opportunities in related trucking sectors. And that means market segments with better margins and shorter miles, tied more closely to the e-commerce boom.

"[Carriers] are flush with money, and there's not enough deals in the market," said Sathe. 

Creating tightness in the M&A market is that LTL carriers tend to be held by publicly traded companies or longtime family interests, two groups that may be hesitant to sell, said Satish Jindel, president of SJ Consulting Group.

Barriers to entry

Capacity is tight in the LTL sector, and it's not just attributable to demand. There aren't that many prominent carriers in the space. It's an expensive sector to operate, and there are barriers to entry.

That was highlighted when Central Freight Lines, the nation's 21st-largest North American LTL carrier, shuttered last December. The LTL carrier, based in Texas, had $580 million in debt, according to Bruce Kalem, company president.

Cowen noted Central Freight Lines' closure, saying in a memo that it "further consolidates the LTL oligopoly in the U.S. and is likely to further support an already strong pricing environment."

The amount of infrastructure and fixed costs required to create an LTL network are also barriers. Jackson said those factors have "resulted in a relatively small number of meaningful providers for the approximately $42 billion dollar LTL industry."

LTLs need distribution centers, while TL carriers do not. Executives at Old Dominion, one of the largest LTL carriers, have noted the difficulty in getting zoned properties near cities that need lots of LTL service.

The environment has created more interest in LTL properties, as it is easier to buy one than to create one. But that means fewer prospects.

The market is going to remain attractive but there are "very limited opportunities," said Jindel. 

And finding opportunities to grow is only part of the battle. Strategy matters, too. There have been instances in which top TL companies grew too fast.

Daseke, for example, added similar flatbed companies that didn't necessarily mesh with the business. Operating ratios rose, and profits shrunk. In 2019, Daseke's annual operating ratio ballooned to 118%. The company promised reform, and in, 2020, its operating ratio improved to 97.6%. On Jan. 25, Daseke reported its 2021 ratio had shrunk to 92.8%.

Such problems could be a greater risk if companies add a new specialty through M&A, such as a TL adding LTL. Jackson addressed the concern in July.

"Although the LTL and TL markets differ, we believe there are capacity and pricing trends and business intelligence tools between truckload and LTL that both Knight-Swift and AAA Cooper can learn from each other to make us more effective in the markets we serve," said Jackson.

Jindel said it's likely not a danger, as Knight-Swift is not going to merge the operations. Plus, Knight-Swift can now offer TL drivers more attractive routes on the LTL maps. LTL drivers can be home after a day at work.

There will also be synergies in the procurement of tractors, recruitment of new drivers and more, Jindel said.

And TL carriers don't just get a new subsidiary, they get the management and technologies that come with the company. Thus, when looking for LTL carriers to buy, TL companies are also looking for competencies to grow the trucking offerings, said Sathe.

"They are going to merge the capabilities to gain synergies," said Sathe.

A battle is brewing within the trucking industry — the likes of Godzilla versus King Kong, or Superman versus the underpowered Batman.

But this battle wouldn't likely sell many movie tickets outside of physics nerds and transport officials, because it's about which type of trucks will replace diesel-powered Class 8s. Will it be battery-electric vehicles? Or will it be fuel-cell-electric trucks, the hydrogen users?

The clash between BEVs and FCEVs is quietly being waged behind the scenes and at conventions, as fleets eye a future of zero emissions. At stake for OEMs is the hearts and minds — and orders — of big and well-capitalized fleets, likely the first customers to order zero-emission vehicles in North America.

The fight analogies depend on who you ask, and answers can also be based on what power those people favor. But one thing seems clear as 2022 begins: Batteries are in the lead, although by no means is it the clear winner.

The elusive hydrogen highway

To industry insiders, it's a familiar debate. And one in which the industry leader has been reversed.

In the 2000s, former President George W. Bush and former California Gov. Arnold Schwarzenegger embraced hydrogen and spoke of the "hydrogen highways" of the future.

In 2004, Schwarzenegger signed an executive order to create a hydrogen highway — defined as a network of hydrogen fueling stations based along main routes — by 2010, when the governor hoped to have 200 hydrogen fuel stations. And then those highways didn't happen.

Chris Nelder, host of the "Energy Transition Show" and an advocate for electric trucks, said the market didn't see the benefit or long-term viability of hydrogen fuel cells — not even for passenger cars.

In the meantime, advocates of BEVs kept plugging away, despite cheap gasoline and competition from other green modes, including hybrids and natural gas.

Then came Tesla, with its sleek and in-demand electric cars, which were snapped up by celebrities. Tesla used its momentum to develop the Semi, a Class 8 model whose production keeps getting delayed.

Now, the federal government's newly inked Infrastructure Investment and Jobs Act, also known as the bipartisan infrastructure law, contains $7.5 billion to build a network of EV chargers. President Joe Biden's goal is to create 500,000 charging stations for battery-electric cars and trucks.

"EVs completely ran away with the market," said Nelder. "The reason is, electricity is everywhere."

The usage numbers also show an electric advantage. Tim Denoyer, ACT Research vice president, said while it's hard to peg the number of battery-electric and hydrogen trucks in North American operation, an estimate puts the number of Class 8 BEVs between 4,000 and 5,000. For fuel-cell trucks, "I'd be surprised if it's in the hundreds," said Denoyer.

Nelder said he sees the writing, or numbers, on the wall. He sees Daimler Trucks using battery-electric, while at the same time many private fleets such as PepsiCo and Amazon are turning to lighter battery-electric trucks for their deliveries. It's possible hydrogen will lose across the board, even Class 8, Nelder said.

OEMs, too, have indicated the tide is beginning to turn.

At ACT Expo in the spring of 2019, Roger Nielsen, then the CEO of Daimler Trucks, gave a keynote speech in which he said the nation's largest truckmaker would focus solely on battery-electric trucks. Later, in April 2021, Traton declared the future of heavy trucks was battery-electric.

"Hydrogen trucks ... will lose more and more ground to — increasingly practical — electric trucks, simply because the latter are cheaper to run," wrote Matthias Gründler and Andreas Kammel of Traton.

The two officials wrote that even as hydrogen prices drop, electric trucks will have a continued advantage.

"Trucks are heavily used capital goods that are much more expensive to fuel than they are to acquire," Gründler and Kammel wrote. "The more electric trucks are being utilized, the bigger their energy cost advantage becomes. And just like that, the common conviction that hydrogen trucks are something for the long haul and electric trucks are just to be used for short-haul application starts to fall apart."

Electric trucks have their own challenges, of course. On Jan. 12, the North American Council for Freight Efficiency and the Rocky Mountain Institute released a study on electric truck usage. It summed up what the organizations believe Canada and the United States would need to charge Class 3, 4 and 5 vans and step vans, Class 6 box trucks, Class 8 terminal tractors and Class 8 regional haul tractors in those countries.

The groups together add up to about 5.2 million trucks, the study found, and they would need a total of 168,582 gigawatt hours annually to charge. But in return, more than 100 million metric tons of carbon would be avoided.

May the best use case win

The varying applications of heavy trucks create multiple openings for electric and hydrogen-fueled trucks to claim best use. Longer hauls are so far not ideal for battery-electric trucks, while fuel-cell electric truck makers are hotly eyeing those hauls. For now, the shorter the runs, the better battery-electric trucks do.

Parker Meeks, Hyzon chief strategy officer, said truck buyers have three main goals in sizing up a zero-emission truck. One is the truck design itself. The other is cost, for service and replacement. The final is fuel availability.

"It all, frankly, comes down to fuel," said Meeks.

When fleets consider zero-emission vehicles, first they size up what those heavy vehicles can do within the five major applications.

But many fleet managers look past these five applications and wonder if BEVs will best FCEVs, resulting in a clear industrywide winner, according to Mike Roeth, executive director of NACFE.

Roeth said at a meeting with fleet executives, they wanted to know who would win the battle for sales supremacy.

"We like cage matches, right?" said Roeth. "It's a hot topic."

For fleets, the strategy is more slow and steady in adoption of BEVs and FCEVs in the Class 8 sector. And it seems electric has some advantage, especially with shorter haul fleets such as LTLs and last-mile.

XPO Logistics is testing several electric Class 8 trucks, made by Daimler Trucks, at a facility in Hayward, California. Its pilot programs in France and Spain, where government officials are pushing green energy harder, are a bit further along, according to Joseph Checkler, XPO vice president of public relations and social media.

"There's a lot of opportunity for electric truck usage but there's technical and economic obstacles for the industry before we hit critical mass," said Checkler.

But XPO's LTL competitor, Saia, decided its buy of BEVs would be in the triple digits. On Jan. 6, Saia signed a letter of intent for 100 Class 8 electric trucks from Nikola. Saia officials said the agreement came after successful demonstrations. The deliveries will occur between 2022 and 2024, with the first 25 likely to arrive in 2022, Saia officials said.

OEMs prepare for a mixed future

Fuel-cell companies believe the future is a mix of technologies to achieve zero emissions. One of them will be hydrogen, because BEVs have issues with range and lengthy charge times.

One application where hydrogen may make some headway is in garbage collection, according to Meeks. While a number of municipalities, including New York City, are testing electric garbage trucks, "most of them don't have much desire to try a second," said Meeks.

The frequent stops-and-starts of garbage collection, combined with the load collections, are taxing the batteries, Meeks said.

The long-haul Class 8 market is also an attractive one to Hyzon. Meeks said its fuel-cell prototypes have 375-mile range, and that may rise to 400 miles, a comforting number for fleets with range anxiety.

Unlike electricity, hydrogen's network is not built out. So, Hyzon plans to make arrangements with partners to develop and distribute hydrogen. On Nov. 10, Hyzon and TC Energy said they have agreed to developments, construction, operation and ownership of hydrogen production facilities — which Hyzon calls hubs — across North America.

But even as Hyzon attempts to build a network and bring hydrogen costs down to parity with diesel — something it believes it can do, especially with federal subsidies — it acknowledges some parts of trucking are dominated by battery-electric. Hyzon will focus on buses, Class 8 and some intensive Class 6 applications, Meeks said.

Some OEMs are targeting all new sectors. Brett Pope, director of central sales electric at Volvo Trucks North America, said his company is preparing multiple zero-emission options, starting with battery-electric.

"As there is no one solution for all customers, Volvo Trucks provides different solutions," Pope said in an email, adding that the company has natural gas and BEVs in production, and it's developing FCEVs.

Roeth, much like Traton and Volvo, said he believes the future will be a mix of zero-emission options, even if battery-electric wins the biggest share.

"It's 'and,' not 'or,'" said Roeth. "We're convinced it's going to be both."

Forward Air's footprint of about 100 terminals will grow to about 130 terminals over the next three to four years, as the carrier doubles down on its premium LTL business, CEO Thomas Schmitt said at the Stephens Annual Investment Conference in Nashville in December.

"Our main show is LTL," Schmitt said.

Forward Air anticipates a strong freight economy in 2022, but noted premium LTL will remain strong even if the cycle begins to turn. The explosion in e-commerce, accelerated in many ways by the pandemic, has created a supply chain environment centered around smaller quantities of freight shipped more frequently — often via LTL.

Seeking premium LTL freight

Forward Air operates in high-value freight industries, such as medical equipment, technology and industrial parts, boasting customers including United Cargo, Expeditors and Best Buy. Schmitt valued the premium LTL market around $10 billion and estimated Forward Air has less than 10% market share.

In the summer of 2021, the carrier worked to cull "inefficient" freight, such as non-palletized or oversized shipments, out of its network, Schmitt said on an October earnings call. By September, "the whole thing came beautifully together," he said. Inefficient freight was gone, and dense, high-value freight became a larger part of the business. Revenue per shipment rose 50% YoY.

Had the company not cleansed its freight mix, "we would have run out of space in some of our core terminals," Schmitt said. "And this would have ... screwed up the exact customer base with the exact high value freight that we actually want to move."

Forward Air will expand its terminal network in primary as well as secondary markets, based on nationwide freight data and customer feedback.

A growing terminal footprint

Over the last year, Forward Air branched out into a number of secondary markets, because "freight flows and our customers told us to go there," Schmitt said. He named Wichita, Kansas, and Chattanooga, Tennessee, as examples of secondary markets, compared to primary markets such as Atlanta, Chicago and Dallas.

But that doesn't mean Forward Air will neglect terminal expansion in primary markets. In fact, Schmitt said the company will add secondary terminals in primary markets.

"We are going to hit close to the ceiling in primary markets," Schmitt said.

Several LTL carriers have worked to expand their terminal networks, to better serve shippers' needs.

Saia plans to open between 10 and 15 terminals this year, in locations that are close to its customers to reduce stem miles. XPO Logistics recently debuted a 150,000-square foot LTL service center in the Chicago area, which CIO and acting LTL President Mario Harik dubbed a "massively important part of the plan to expand our capacity."

There's a limit, though. One of the challenges with UPS Freight, as it was handed off to TFI, is too many terminals, according to CEO Alain Bedard.

Adding terminals is just one part of Forward Air's growth strategy. Schmitt hinted that further acquisitions could be on the way, after it acquired the assets of J&P Hall Express to help expand its LTL network.

"That was an appetizer," Schmitt said at the Stephens conference. "There probably will be a main course at some point."

To J.B. Hunt Chief Commercial Officer Shelley Simpson's recollection, the first time the company ever guided customers on cost was August 2017.

"I don't know how much they believed us on that," she said during the Stephens Annual Investment Conference last December. "But I think [customers] came to understand that we typically are on the front end of what's happening in the supply chain."

What followed in 2018 was the freight boom. 

Fast forward to 2021, and the market was hot again. But this time, J.B. Hunt had no plans to issue a year-end customer letter — a sign the company doesn't anticipate any major shifts as 2022 beings.

If the 2017 guidance is any indication, the trucking firm isn't wrong. But that doesn't mean expenses won't be rising for trucking firms and, therefore, their customers.

"We have shared with our customers that we have inflation; we have cost pressures that we need to share," Simpson said.

What costs are coming?

A key difference between the 2018 freight boom and the soaring demand seen throughout 2021 is capacity. Supply chain snags and driver-recruitment headwinds have kept supply low this time around. 

Simpson said J.B. Hunt had "plateaued" on driver numbers but that the company's goals for those numbers, in general, are relatively high, due to customer demand and the number of trucks in the network. 

But the number of new trucks J.B. Hunt will be able to onboard has decreased, which the firm has had to discuss with OEMs and customers. Plans are "constantly evolving," she said. 

By the end of Q1, J.B. Hunt aims to onboard 12,000 intermodal containers and 3,000 boxes for J.B. Hunt 360, which will help with capacity. But orders for new Class 8 trucks aren't close to meeting demand, according to FTR. Semiconductor shortages are constraining build rates, and manufacturers don't want to over-commit.

"OEMs have a large number of fleet commitments for 2022. They are delaying entering these orders until they know how many they will be able to build each month," FTR Vice President of Commercial Vehicles Don Ake said in a recent post.

Because of the lack of new builds, large fleets have had to run vehicles beyond their trade-in cycles, Ake said. That's true for J.B. Hunt, which has "a considerable amount" of trades coming due in 2022, Simpson said.

"Us not being able to take on some new equipment — that creates an increase in costs," Simpson said.

In early December, J.B. Hunt was still doing the math on how long it could hold onto its equipment. But Simpson said she felt confident in the plan for continued use. Other fleets may not be so fortunate, however.

Simpson predicted the inability to trade could be an industry-wide trend that not every fleet could afford. J.B. Hunt is a fleet that can afford it, in part by sharing costs with customers.

"So, the cost of service is going to move up. That's a new cost that we really had not talked to our customers about," she said. 

With older equipment, maintenance costs are likely to go up across the board. And market dynamics would also prop up used-truck prices, which are already elevated, she said.

Passing costs onto customers

High demand is more favorable than low, but when supply can't keep up, customer expectations are some of the first things to become compromised.

In more nondisruptive times, J.B. Hunt usually has a good enough understanding of its cost basis to incorporate it into bid pricing, which allows customers to plan. But current market uncertainty, however, means the bids don't necessarily have the best data behind them, Simpson said.

"[Customers] certainly aren't that good at forecasting because we aren't, either," she said. "You really do need to define your network and what that looks like. Our customers have struggled with that; we have as well. And so, we're constantly finding that balance."

J.B. Hunt generally eschews issuing wholesale rate increases across its customer base, which is why customer letters are so rare, Simpson said.

Instead, the company prefers to talk to each customer individually. That way, it can customize increases to what is necessary, depending on the type of business, location, fluidity and other factors. 

"Every case is going to be a little bit different," she said.

The trucking market is hot. Fleets have been setting various company records when reporting earnings, and rates are inflationary.

"The market conditions that impact Ryder right now are pretty good, both from a freight-demand perspective and customer demand," Ryder System CFO John Diez said during the Stephens Annual Investment Conference last December.

Add to that favorable used-equipment prices, and it paints a rosy picture for Ryder.

But tailwinds are rarely permanent. Identifying opportunities for operational improvements during booms is just as important as spotting them during busts.

Diez spoke about five key trends Ryder is keeping tabs on, and how the company is poised — or plans — to get ahead.

1. Compensation and benefits are top of mind

The American Trucking Associations said the industry is down some 80,000 drivers. Labor headwinds are bumping up prices across the supply chain.

"We're going back to customers looking for price increases to really keep up with the wage inflation we're seeing in that space. We've made good progress on that side. And then I think the market conditions are going to improve," Diez said.

A large portion of Ryder's dedicated operations are for specialized delivery, be it bricks, steel or another material that requires knowledge beyond driving dock to dock. That also means wages have "probably escalated quicker" for specialized drivers than OTR drivers, Diez said.

"With that, the driver space becomes much more challenging. So, we're constantly looking to get ahead of the turnover," he said.

Getting ahead means making sure driving jobs at Ryder are attractive. Going forward, the company will continue to examine wage increases and improvements to benefits packages, Diez said.

Fleets across the board are using benefits as a recruitment and retention tool. For example, some have begun offering immediate medical coverage, eliminating any waiting period.

2. Dedicated is poised to keep booming

If there is a bright side to driver constraints, it might be that such struggles are prompting shippers to lean more on their trucking partners to supply transport services, rather than their private fleets.

"That's really helped that business deliver some great sales results. We're gonna expect that tailwind and that secular trend of driver challenges to continue to promote tailwind for our dedicated business," Diez said.

Ryder's fleet management segment has reaped some of the benefit from that phenomenon. Many shippers don't specialize in transportation, so they're turning to Ryder to find drivers and execute on logistics.

Dedicated posted double-digit growth in Q3, which he expected to carry over to Q4. In 2022 Ryder is targeting 8% or 9% growth, though Diez said he thinks its going to surpass that.

"What we're seeing is the pipeline strengthen, based on private fleets. So, I would say the health of the pipeline is probably better than we've seen in the past," Diez said.

Ryder isn't the only one spotting this trend. It's one of the reasons Schneider spent $263 million to acquire a dedicated company.

3. A shift toward lighter trucks in lease and rental

When dedicated is booming at Ryder, that takes equipment away from ChoiceLease. Though the company has posted "two great sales years back to back," Diez said, there hasn't been visible growth in its fleet. Delivery windows for equipment have elongated. So when a truck leaves the fleet, it is not necessarily being replaced.

That will likely change in the second half of 2022 into 2023, he said. The full-year 2022 outlook doesn't project significant growth. That means Ryder is being even more selective in which customers it takes on.

In its commercial rental business, Ryder has noticed a shift toward lighter trucks.

"With e-commerce, we're seeing just the demand there go through the roof for light-duty and medium-duty trucks, straight trucks as opposed to tractors. So, we think that's a market that could provide stability in that product line for longer," Diez said.

Diez projected the shift to lighter models will continue to grow, and the change will be visible by 2025. The smaller trucks represent about 60% of the power fleet in the commercial rental segment, which includes some trailers, he said. Going forward, the company is looking to grow that to as much as 70%.

Ryder will continue to explore investment opportunities in that space, he said.

4. Used-truck prices to stay up — but not forever

Used-truck prices are up and, according to Diez, are not likely to come down in 2022. To gauge this, Ryder looks at market inventories, he said.

Usually, market inventories are at 60,000. At the end of last year, they were around 30,000. So, for prices to come down, that number would have to rise significantly. With OEMs exercising caution around new Class 8 builds and pushing large portions of production to 2023, it would take a while for that to occur.

"You're looking at low inventory levels that, in the near term, I don't see them moving up quickly enough," he said. "So, we do expect a pretty good pricing environment to push into 2022."

But Ryder knows prices will come down eventually. The company has worked to de-risk the business to prepare for the next downturn, such as taking "just a modest amount of deprecation."

"What we're looking to do is give investors the confidence that they're not going to see losses from used vehicles, that we're gonna continue to deliver gains. They're not going to be at the same level we experienced today," Diez said.

5. Prepping now for truck models of the future

Ryder is working with OEMs, startups and established ones alike to test electric trucks. The company is also active on the autonomous-vehicle front, working with TuSimple, Waymo, Embark, Gatik and others.

Being involved helps ensure the fleet stays ahead of the curve — and has a hand in developing technologies and networks.

Autonomous vehicles

"We think we have a great business model that can be leveraged for autonomous," Diez said.

The company is participating in pilots for operations, such as last-mile delivery, as well as in maintenance roles.

AV components will be highly specialized, he said. If Ryder can properly train its technicians, that could amount to a sizable competitive advantage.

But the success of any future maintenance offerings depends on widespread adoption. The technology is still being proven out and developed, but Ryder views its participating in network design in the early stages as a way to guide it in the right direction.

"It's early," he said of the technology. "What we're looking to do is figure out, how can we create value long-term, whether it's leveraging our real estate, leveraging our capabilities and know-how, or just simply just leveraging our service maintenance capabilities to support that business. That is a big opportunity for us as we look forward."

Electric vehicles

When it comes to heavy-duty electric vehicles, "the economics just don't work and the physics are still under review," Diez said. "So, I think that will be longer term."

Unless, that is, the government gets even more involved. The regulatory environment "can tip the scales," Diez said, whether that's in California or other states.

"We've seen a few states talk about it, but we haven't seen broad momentum around that just yet," he said. "Clearly, on the passenger vehicle side, you're seeing that, and you're seeing the OEMs react to it. We haven't seen that yet, but we're keeping an eye on it."

Light-duty EVs, on the other hand, could be on a shorter timeline. Diez anticipates adoption will pick up over "the next couple of years," and Ryder will be looking to participate in that trend.

Schneider kicked off the new year with a big buy: Midwest Logistics Systems, an Ohio TL carrier it snapped up for $263 million.

But the acquisition wasn't a surprise. The truckload giant signaled new strategies for 2022 at a December "fireside chat" with Stephens managing director Jack Atkins, held in Nashville.

Mark Rourke, Schneider CEO, outlined several strategies the trucking firm plans to deploy to capitalize on what it projects to be a red-hot trucking market.

"Certainly, the first half [of 2022] seems pretty solid," said Rourke.

Lean into intermodal

A constant stream of containers arriving at West Coast ports has made intermodal an attractive segment. Atkins noted that Schneider is very bullish on intermodal, "a growth driver" for the Wisconsin-based TL company.

Intermodal will be lively in 2022, Rourke predicted, telling Atkins that the company will have "several thousand" intermodal boxes to use, while assets are adding to the intermodal segment.

Schneider, being one of the largest North American TL carriers, owns containers and chassis. That gives the fleet more control over the customer experience, Rourke said.

But the industry has problems with dwell time of intermodal assets, which Rourke called a "cholesterol" of the trucking sector. At the end of 2021, the company saw improvement with asset productivity, which Rourke said was encouraging.

Switch up driver-recruitment strategies

Atkins said another TL CEO saw slight improvement in driver recruitment. The CEO, which went unnamed, had told Atkins that August was a "10" in terms of recruitment difficulty, but that had eased to 9.5.

Rourke responded by saying that pay increases in the industry to get "some more inquiries from folks outside the industry."

"For the first time in a decade, we stood up our training academies in the second quarter," said Rourke.

That meant fresh people "off the street" would get their CDL.

"Previously, we would only take if you had your CDL," said Rourke.

Atkins asked if things will change in the next five years, specifically a redefinition of the role of drivers, giving them a more stable career, perhaps with change in pay structure, away from pay per mile.

"We're going to have more of a fixed paid structure for even those irregular route drivers, because we have to provide that level of stability," Rourke said. "We can't sustain a level of turnover in that non-dedicated and non-intermodal dray world."

Use M&A to add value

The freight environment is ripe for M&A, and Rourke said the company is looking at defensible and augmentation opportunities. Rourke said a good M&A strategy is grabbing something the client needs.

"Whether it be dedicated or specialty, something else that you are doing to provide value to the customer besides moving the product [from point] A to B," said Rourke, foreshadowing the Midwest Logistics Systems buy and other 2022 strategies.

Rourke said the M&A also should provide a buffer around the base business.

"Something that gives you a little bit of a 'moat' — like Warren Buffett likes to say — around your business," said Rourke.

In the years to come, Werner doesn't plan to stray far from its roots or massively overhaul its operating model. By many metrics, its strategy is working. Truckload haulage and dedicated services have thrived in recent months, and Werner's revenue grew nearly 20% YoY in Q3 2021.

But the carrier has identified a key cornerstone of its five-year plan: work with winners.

"It may sound harsh, but honestly, in order to support winners, we've got to be intentional about that," Werner CEO Derek Leathers said at the Stephens Annual Investment Conference in December. 

Transport firms have the leverage to be selective about shippers in today's carrier market. They can afford to pick and choose the customers they believe will most benefit their businesses. In some cases, they have even had to turn away loads due to tight capacity. 

So, what makes a winning shipper in Werner's view?

3 traits of the best-in-class shippers

Leathers laid out some of the key characteristics of what he and Werner consider "winning" customers, including having a focus on visibility and a long-term view of supply chain operations. 

"Those are the folks we want to hitch the wagons to, so to speak," Leathers said.

They have strong sales

Almost 60% of Werner's top customers by revenue are shippers in retail, an industry that has proven to be a booster for trucking with annual sales growth of 16%.

But the pandemic had uneven effects on retailers. While some adapted and flourished in an e-commerce world, others got the short end of the stick. Work-from-home meant beauty retailers like Sephora and Ulta saw revenues dip, and so did department stores such as J.C. Penney and Nordstrom, according to the National Retail Federation. Meanwhile, sales thrived at furniture and home improvement stores, such as Wayfair and Lowe's.

In many cases, the ones that struggled pre-pandemic continued to struggle when COVID-19 brought store closures and a new era of shopping, and carriers hauling for weak retailers were exposed to their risks.

Winning customers' "sales are way better than less successful companies," Leathers said. Plus, they're more resilient and less at the mercy of market swings. In a July 2021 business update, Werner noted winning companies are often "cycle proof." 

About half of Werner's total revenue comes from its top 10 customers, the business update stated. A further focus on the highest-grossing companies could grow that percentage. 

They see the supply chain as a competitive advantage

The best retailers across the U.S. view their supply chains "as part of what makes it possible to win," Leathers said at the Stephens conference. 

Focus on and investment in supply chains are among the key trends analysts predict for the retail sector this year, given the constraints and congestion retailers experienced in 2021 and the first month of 2022. 

That focus on supply chain correlates to an importance placed on related services that a transport firm such as Werner would offer, including service, freight visibility and capacity growth.

On the flip side, retailers struggling financially often see their supply chain as a cost center, rather than a competitive advantage, he added.

"It's going to come ultimately to their own detriment," Leathers said. "But we won't be around for that to happen, because we're going to find the folks that have winning models."

They take asset productivity seriously

Leathers said he's seen productivity and asset turns decline across customer facilities. 

It's a sentiment other trucking executives have also expressed, particularly in a market where tractors and trailers are in high demand and short supply. 

"We've got more trailers tied up in these detention situations than I've ever seen," Yellow CEO Darren Hawkins said at the Council of Supply Chain Management Professionals Edge 2021 conference in Atlanta.

For Werner, its most-valued shippers are the ones that work to speed equipment turns, through staffing and technology at facilities.

"Those customers that take [asset turns] seriously and really lean into it are going to find carriers like Werner further leaning into them," Leathers said.

Werner and its customers have also made use of trailer pools to avoid live loading trailers. Leathers said the pools allow more flexibility for carriers and more efficient asset use. It's also a strategy that's gained traction across the trucking industry, with companies such as Knight-Swift, Schneider and Uber Freight leaning in to trailer pools. 

Shippers seek winning carriers

Aligning with winners is a two-way street. Shippers have sought closer partnerships and dedicated contracts in a tight transportation market.

Carriers have responded by leaning into dedicated operations and growing those services organically or through acquisition. 

"You run the business based on decades of relationships," Leathers said. "We're excited about the folks that we're with. We want to stay and grow with them, and we want to support them with their plans to win."

Yellow is hunting for profits.

While that’s not unusual for any business, analysts suspected Yellow was close to dissolution in 2020 — pulled from the brink only by a $700 million federal loan.

But now, the opportunity for profit is in Yellow's "super regional" approach, CEO Darren Hawkins explained during the Stephens Annual Investment Conference last month.

The LTL outlook is favorable, Hawkins said. And his company has worked to geographically position itself to take full advantage of shippers wanting to be closer to their customers' bases. It is a demand created by the last several years of e-commerce, heightened by the pandemic, leading even more people to shop online.

To create speed for shippers, Yellow, for years one of North America's largest LTL carriers, has been adding or enhancing centers to add "velocity" to its shipment offerings, said Hawkins. And its national reach can offer next-day for 200-mile shipments, or 3,000-mile transcontinental offerings, he said.

These velocity centers show so much promise, Hawkins said, that Yellow added such buildings in Richmond, Virginia; Little Rock, Arkansas; and San Antonio.

"LTL will grow at a faster pace than what we've seen in the past," said Hawkins. "We are seeing new warehouses open every 24 hours from some of our largest shippers out there."

Hawkins said shippers want to be about a two-day reach from customers. Yellow and other LTL carriers are "already there," eager to help, he said. All while capacity in the North American LTL sector is very tight.

"That's why I believe our revenue in shipment will go up," said Hawkins.

Sustainable revenue modeling

Looking ahead as far as 2024, will Yellow have a sustainable revenue model? The company will have notable debt maturities beginning to come due that year, said session moderator Jack Atkins, managing director for Stephens.

During Yellow's Q3 call, Hawkins said the company was poised for growth, to leap into the black ink from the red, Atkins noted. But Yellow has shrunk by 40% in the last decade. How, then, will the company accelerate into growth?

Its “One Yellow” initiative will likely help, Hawkins said. The company’s series of consolidations in pursuit of making Yellow a one-name, one-stop LTL carrier is meant to streamline operations. And profitability could be achieved by cutting through the clutter and duplications of Yellow’s multiple LTL subsidiaries, which included New Penn, Holland, Reddaway and HNRY Logistics.

To achieve regular quarterly profits, Yellow will have to cut other costs along with the clutter, Hawkins said. That includes costly tonnage.

"When you compare us to our publicly reported peers, we're industry-leading in yield right now," said Hawkins. "We're also industry-leading in tonnage decline."

Hawkins said the tonnage decline was due to removing purchased transportation on lanes where costs were "egregious," at least until costs were normalized on those lanes.

Assets, speed, velocity

As consolidation takes place, Yellow has faced decisions about physical assets, such as real estate.

Yellow has 317 terminals, Hawkins said. And if asset-based centers need to be consolidated, they will be. He said the company will end up with 309 facilities at the end of 2022.

"But we're not giving up any capacity; we're not giving up any geography," said Hawkins. "We recognize, and I believe, personally, that the LTL pie will continue to grow for the industry as a whole."