J.B. Hunt had a rough day on Wall Street.
Shares of J.B. Hunt Transport Services fell roughly 13% Wednesday, dropping to around $238, after management issued a rare mid-quarter warning that third-quarter earnings are expected to decline 5% to 10% from Q2.
Investors focused on the obvious problem:
Costs are rising faster than J.B. Hunt can immediately pass them through to customers.
But for trucking operators, brokers and owner-operators, the more interesting question may be why those costs are rising.
J.B. Hunt says demand remains strong.
The bigger problem is capacity.
Purchased Transportation Costs Jumped as Much as 30%
J.B. Hunt CFO Brad Delco told investors the company experienced one of the most acute changes in purchased-transportation costs it has seen, with spot costs increasing roughly 30% intra-quarter.
That does not mean nationwide truckload spot rates increased 30%.
It means the transportation capacity J.B. Hunt purchases in the spot market became dramatically more expensive during the quarter.
That distinction matters.
When a major transportation company suddenly has to pay substantially more to cover freight, it can be a sign that the balance between freight demand and available trucks is changing.
J.B. Hunt Is Spending Another $25 Million on Drivers
J.B. Hunt also expects approximately $25 million in additional driver-related costs in Q3 compared with Q2.
Those expenses include recruiting, advertising, onboarding, training and sign-on bonuses.
That is one of the more significant numbers in the entire story.
For the past several years, trucking has been dealing with the opposite problem:
Too many trucks.
Too much capacity.
Too many carriers chasing the same freight.
Now one of the largest transportation companies in America is spending tens of millions of additional dollars trying to make sure it has enough drivers and capacity.
J.B. Hunt management said the capacity situation is “not letting up at all” and could actually be getting worse.
Record Diesel Prices Are Making It Worse
Capacity isn’t J.B. Hunt’s only problem.
The company also expects at least a $10 million sequential fuel headwind in Q3 as diesel prices remain historically high.
That combination is what Wall Street doesn’t like:
Higher driver costs.
Higher purchased-transportation costs.
Higher fuel costs.
And pricing that cannot immediately adjust fast enough to compensate.
J.B. Hunt generates most of its operating income through intermodal and dedicated operations, where customer pricing tends to adjust more slowly than spot truckload rates. FreightWaves reported that approximately 96% of the company’s operating income comes from those two segments, which creates a timing problem when costs move sharply before customer pricing catches up.
That helps explain why investors sold the stock so aggressively.
Wall Street Sees a Margin Problem
From an investor’s perspective, the reaction makes sense.
J.B. Hunt’s projected earnings decline came despite management continuing to describe demand as strong.
The midpoint of the company’s Q3 outlook implies earnings of roughly $1.77 per share, about 16% below the prevailing Wall Street consensus estimate of approximately $2.10.
That’s why the stock got hit.
Investors expected improving freight conditions to translate into stronger profitability.
Instead, J.B. Hunt is saying that the cost of participating in that improving freight market is increasing faster than expected.
Carriers Should Read the Same Numbers Differently
For an owner-operator or small fleet, however, some of the same numbers tell another story.
Wall Street sees:
Higher labor costs. Higher transportation costs. Lower near-term margins.
A carrier might see:
Strong freight demand. More expensive outside capacity. Aggressive driver recruiting. Fewer available trucks.
Both interpretations can be true at the same time.
That’s what makes this story more important than J.B. Hunt’s stock price alone.
The Capacity Cycle May Be Turning
This also fits with several other signals the freight market has been producing.
Uber Freight recently warned shippers that tighter truck capacity could expose them to another Q4 rate surge if demand accelerates.
Spot rates have been strengthening.
Tender rejections remain elevated.
And multiple major transportation companies are now talking openly about difficulty securing capacity.
J.B. Hunt’s comments add another large carrier to that list.
The company isn’t saying freight disappeared.
It’s saying that getting enough drivers and outside transportation capacity is becoming more expensive.
That’s a very different problem from the freight recession carriers spent the last several years surviving.
What Owner-Operators Should Do With This
This is not a signal to run out and finance five trucks.
The market can improve while individual carriers still fail.
Equipment debt is still real.
Insurance is still expensive.
Diesel remains historically high.
And financing has become more difficult for many operators.
The smarter move may be to strengthen your position before adding equipment.
For carriers with their own authority:
Build stronger relationships with brokers.
Start developing direct shipper relationships.
Identify freight you can reliably move before adding trucks.
And if you’re planning to work with owner-operators, start developing those relationships before everyone is competing for the same capacity.
Position first. Expand second.
Brokers Should Be Paying Attention Too
The same logic applies on the brokerage side.
When trucks are abundant, carrier relationships can feel interchangeable.
When capacity gets tight, they become extremely valuable.
A broker that waits until Q4 to figure out which carriers will answer the phone may already be too late.
Now is the time to strengthen carrier-sales relationships, understand which operators consistently service your lanes and determine who you can rely on if the market tightens further.
The Real Story Behind J.B. Hunt’s 13% Drop
J.B. Hunt’s stock fell because investors don’t like rapidly increasing costs.
That’s the immediate story.
But trucking operators should look underneath the stock chart.
One of America’s largest transportation companies is telling the market:
Demand is still strong.
Purchased transportation has become dramatically more expensive.
Driver-related spending is increasing by tens of millions of dollars.
And capacity conditions may be getting worse.
That doesn’t prove a full freight recovery has arrived.
But it does suggest the supply-and-demand equation is changing.
For the last several years, trucks were competing for freight.
If this trend continues, we could increasingly see the opposite:
Freight competing for trucks.
And for carriers that survived the downturn, that is the part of J.B. Hunt’s 13% stock drop worth paying attention to.