Roughly a week after one analyst warned of a “trucking winter,” another is saying to brace for a possible “New Year hangover” in the industry, as falling demand collides with higher labor and other costs next year following the holiday rush.
Citi Research analyst Christian Wetherbee, in a research note on Thursday, cut his third-quarter and 2023 earnings-per-share estimates for U.S. trucking and logistics companies. And he downgraded C.H. Robinson Worldwide Inc., citing concerns about one of its businesses that is “heavily exposed” to falling spot ocean-shipping rates.
Wetherbee said he was cutting his third-quarter earnings-per-share estimates by 4% and 2023 estimates by 7%, as freight demand and shipping prices continue to ease following last year’s supply-chain backups.
“As we’ve been highlighting consistently since early in 2022, we see an ongoing freight trend deceleration,” he said. “However, with cost inflation likely to be persistent into 2023, we are growing concerned that we could see an air pocket in early 2023, which could result in a sharp miss vs. current consensus expectations.”
More broadly, the Citi analyst said that rising wages and other costs would become more difficult for trucking companies to manage as demand fades.
He also downgraded C.H. Robinson
CHRW,
to neutral from buy, and cut his price target to $107 from $123. Shares of C.H. Robinson fell 3.4% on Friday.
Wetherbee said he was concerned about Robinson’s global forwarding segment, which offers international ocean and air-freight service and logistics services and is thus tied to ocean-shipping rates.
“With ocean rates down substantially, we see risk to (global forwarding’s) profits, which have more than tripled through the pandemic,” he said.
According to FactSet, at least 11 analysts have a hold rating on C.H. Robinson stock. At least five have buy ratings, and at least four have a sell rating on the stock.
Ocean shipping rates and trucking rates on the spot market, where customers pay on the spot rather than in advance, have fallen in tandem with demand for goods, as rising prices for necessities like groceries take over a bigger share of consumers’ budgets. Space on trucks has opened up over this year. But fuel costs for both ocean carriers and truckers are also up.
The falling shipping rates have been a relief for businesses following last year’s massive supply-chain backups. But they risk hurting freight carriers’ profits.
BofA analyst Ken Hoexter, in a note on Thursday, said the cost to ship a twenty-foot container’s worth of stuff over the water had returned to pre-pandemic levels — or around $1,500 to $2,500. Citing Freightos data, he said trans-Pacific container spot shipping rates, from Shanghai to the West Coast, plateaued at around $20,000 in September 2021. On Oct. 4 of this year, those same rates stood at $2,561.
Within truckload carriers, he said marginal costs per mile were estimated at around $2.01 last month, compared to $1.86 a year earlier.
C.H. Robinson stock is down 12% year-to date. By comparison, the S&P 500 Index has fallen 23% over that time.
