Forward Air shares are delivering on something few companies have as the year draws to a close. The stock is beating the Dow Jones Transportation Average and the S&P 500 in the fourth quarter.

The trucking and logistics company, which counts Home Depot and Delta Air Lines among its customers, receives 30% of its revenue from e-commerce, 40% from industrial trucking, and 30% from specialty trucking for high-value services including live events and health-care equipment.

Forward Air CEO Tom Schmitt recently spoke with CNBC’s Frank Holland about the holiday shipping season, the volume his customers are expecting for Lunar New Year, and the supply chain, trucking, and pricing outlook for 2023. Watch the video above for his predictions.

Below are a few of the highlights from the conversation.

Fourth quarter weakness will extend into 2023

Schmitt described the fourth quarter as “unusually slow,” and he said that wasn’t a surprise amid consensus view that it would not be a “very pronounced” peak season.

The issue: amid weaker demand, a lot of inventory was already shipped from Asia to North America, and already sitting in warehouses closer to the consumer.

This situation won’t end with the close of 2022. “The first few months of next year there is consensus there will be slowness,” Schmitt said. “It will be like that for the next quarter or two.”

Shippers make less, Peloton helps explain why

Forward Air is in a high-value niche, handling shipping for concert tours and medical equipment, and higher rates can be achieved in these areas with lower to no margin for error on delivery times, he said, but throughout the logistics space there is less profit right now as a function of overall shipment trends.

He gave the example of heavy treadmills sold during the e-commerce boom, and which in recent history came in orders of seven but are now down to three “because others are already sitting in warehouses,” he said.

All companies in the shipping sector will be dealing with margin pressure over next quarter or two, he said, simply because there are fewer pieces per shipment.

The freight company is raising rates, with its annual increase set for 5.9% in February 2023. Schmitt said spot rates are down and that “transactional softness” will remain, but contract will continue to be strong.

China trade outlook

While China’s trade economy will rebound, but it will take time, with inventories still adjusting downward from gluts already shipped and less coming in before the logistics industry will get to a more normalized rate, ” the seven treadmills vs. three starting to kick in again,” Schmitt said.

His outlook for Lunar New Year sales is similar, with signs that China will “start living in a post-Covid economy,” albeit with some forms of safety practices at an enhanced level. “But I expect more normal … closer to pre-pandemic with this year Lunar New Year, but we’re not there yet,” Schmitt said.
Source: CNBC