Dive Brief:
- Covenant Logistics Group raised rates multiple times last quarter and expects to do so again next year, CEO David Parker said on a Q3 earnings call last month.
- While some customers might balk at an immediate 5% increase, the carrier will propose a 2% to 3% increase in the current bid season and another 2% to 3% increase in the second half of next year, Parker said.
- “Can I go overall and say, here's 5%? I'm not sure that you can,” he said. “I do believe that we can get 2%-3% now and say, let's look at it in the summer. ... That’s what we’re hitting the road hoping to obtain.”
Dive Insight:
Rate increases and new dedicated business awards have provided green shoots for Covenant, but they have been offset somewhat by softer than anticipated volumes, particularly within the carrier’s Expedited segment. The company’s overall operating income grew 7.2% year over year to $16.2 million in the quarter, according to an earnings report.
Covenant has been successful in obtaining rate increases, rolling out three in 45 days during the second quarter. It boosted prices another three or four times in Q3, Parker said on the call.
Any inability to boost rates further in the coming quarters “won't be from a lack of asking,” Parker promised. “I think that we've got relationships enough with our customers that we can be successful in getting some.”
Covenant’s operating model, which it moved to two years ago, relies more on dedicated customer contracts to avoid spot market volatility, providing the company with more stability. Other TL players, such as Schneider National and Werner Enterprises, have also worked to raise their proportion of dedicated business, noting similar concerns.
But lowering spot market exposure carries a short-term downside when the freight cycle improves, as those multi-year contracts take longer to capture a rebound in rates.
“It's a different company,” CFO Tripp Grant said on the call. “We were so volatile in the past. ... We are more contractual. We are more profitable. We're more stable.”
