Is the Supply Chain Normalizing?

By Flystock @ Shutterstock.com

JB Hunt, one of America’s largest logistics companies has suggested to its investors that the logistics business is returning to normal, with seasonality once again becoming part of the business. For years logistics companies have operated at full capacity year-round. Now, what had traditionally been a seasonal business looks to be returning to that model. Paul Page reports in The Wall Street Journal:

Trucking and logistics giant J.B. Hunt Transport Services Inc. expects freight demand to regain traction in the coming months as the pandemic-driven upheaval in supply chains fades and companies return to more conventional ordering cycles.

“We have had good signals from our customers about Q2 starting up back to a more normalized or having a more normal environment,” J.B. Hunt President Shelley Simpson said in an earnings conference call Wednesday.

“We are not sure at what point that is in Q2,” she said, according to a FactSet transcript of the earnings call. “But we do feel like the back half of the year we have confidence from what our customers are giving us in the data points that they have, what they are going to be doing from an ordering perspective.”

Slowing shipping demand helped push fourth-quarter profit at J.B. Hunt down 17% from the same quarter the year before and revenue growth fell short of expectations as retailers pulled back on inventory restocking and consumer spending sagged during the traditional shopping season heading into the holidays.

Operating revenues at the freight bellwether rose 4% in the last three months of 2022 over the year before to $3.65 billion, the company said Wednesday, but freight-related revenues excluding fuel surcharges were off about 3% from the fourth quarter of 2021.

Fourth-quarter earnings per share of $1.92 were short of analyst expectations of $2.44 per share.

Operating income in the Lowell, Ark.-based company’s intermodal segment, which moves goods in a combined truck and rail transport, fell 8% to $179 million as declining volumes and higher labor, maintenance and insurance costs offset an 11% increase in revenue.

“Demand for intermodal capacity was seasonally weaker than normal, as peak season activityleading up to the holidays was absent this year,” Darren Field, president of intermodal at J.B. Hunt, said in the earnings call. He said volumes weakened sequentially during the fourth quarter, with volumes up 4% in October before falling 3% in November and 5% in December.

Shares were up 4.2% to $183.69 in afternoon trading Wednesday.

The steepest revenue decline came in J.B. Hunt’s Integrated Capacity Solutions unit, which matches freight loads to trucks. Revenue at the freight brokerage operation fell 33% from the previous year’s fourth quarter on sharply lower volumes and the business reported a $2.9 million operating loss.

Company executives declined to provide earnings guidance for the rest of 2023 but said they expected what they called an “inventory correction” to fade and that retailers and manufacturers would soon start ordering goods for the summer and fall.

“We haven’t seen seasonality over the better part of the last two or three years, just based on elevated demand levels that we’ve seen,” Brad Delco, J.B. Hunt’s senior vice president of finance, said on the earnings call. “Clearly, seasonality has come back into play.”