The news: Advance Auto Parts is rebidding all of its carrier contracts and plans to move its freight with 70% fewer carriers. CEO Shane O’Kelly said the rebid “is expected to generate tens of millions of dollars in cost savings” on the fiscal second quarter call. The savings support margin expansion in 2027.
What that rebid is worth depends on the freight market, and the freight market has turned. Knight-Swift, Werner, Schneider and RXO each reported the same tightening on their second quarter calls. Contract rates are climbing, spot rates are running above contract, and shippers’ routing guides are under strain.
Advance finished consolidating its distribution centers in the same quarter. “Two years ago, we operated nearly 40 DCs across the US, utilizing multiple warehouse management systems,” O’Kelly said. “As of today, we operate 15 DCs supported by a unified warehouse system.”
The company has also standardized receiving across those 15 buildings. It has completed a quarter of the process changes it identified in its DCs and expects to finish the rest by mid-2027.
By the numbers: Comparable sales fell 0.5% in the quarter. The professional installer business grew low single digits and DIY fell low single digits, most of it in the final four weeks.
Gross margin expanded 240 basis points, but 130 of those came from a one-time $26 million tariff refund, per the release. Free cash flow reached $120 million year to date after two years of outflows.
What changed: Advance now runs a smaller, simpler network than it did two years ago, and it is spending its 2026 capital on the layer between the DCs and the stores.
Distribution centers: nearly 40 on several warehouse systems, now 15 on one, completed in the second quarter.
Carriers: every contract out for rebid, with about 70% fewer carriers when it is done.
Market hubs: 38 open, stocking 70,000 to 80,000 SKUs each and supplying surrounding stores. Advance now plans 15 to 20 hub openings this year, up from 10 to 15, and 60 hubs by mid-2027.
New stores: 2026 openings cut to 30 to 35 from 40 to 45, with capex held at about $300 million.
Most of the hubs are not new buildings. Only four of the first 35 were greenfield sites, CFO Ryan Grimsland said on the first quarter call. The rest were converted from the small DCs that were closed in the consolidation.
Jason Miller, a supply chain professor at Michigan State University, has written that Grimsland puts the average cost of opening a hub at about $2 million, and that Advance is filling them into vacated big-box space.
Markets with a hub have comped about 100 basis points better than markets without one, Grimsland said.
The company has not said which modes the rebid covers, how many carriers it uses today, or what the savings are worth in dollars.
The pattern: Four of the largest truckload carriers and brokers, on four calls in July and August, described the same turn in the market.
Knight-Swift is getting double-digit rate increases on recent bids. Its truckload rate per loaded mile accelerated from low single digits in April to 8% in June, and its tender rejection rate, the share of contracted loads a carrier turns down, ran at twice the industry average.
Schneider said network contract renewals rose by double digits on average in the quarter and that spot rates now run above contract. It is also running “a growing number of mini bids,” the off-cycle repricings that follow a failing routing guide, per the transcript.
Werner’s one-way truckload fleet raised revenue per total mile 10% in the quarter, after cutting that fleet 34% year over year. Its dedicated fleet, which is 80% of its truckload network, is renewing at low- to mid-single-digit increases.
RXO’s truckload spot rate index rose 32% year over year in the quarter and 43% so far in the third quarter, while contract rates rose 6%, according to FreightWaves. Corey Klujsza, RXO’s vice president of pricing and procurement, said routing guides are seeing “increased strain.”
All three carriers tied the tightening to supply rather than demand. Schneider named enforcement against non-domiciled commercial licenses, English-proficiency violations and illegal cabotage as the causes, and said about 30,000 drivers had visas revoked. Knight-Swift CEO Adam Miller called the change “durable.”
Knight-Swift, Werner and Schneider all reported before Advance disclosed its rebid.
The counter: Advance’s own second quarter already shows the cost side moving against it. Higher freight and fuel costs took about 20 basis points off gross margin on lower-than-expected volume, Grimsland said. The second-half outlook keeps freight and fuel elevated, and the full-year tariff-refund benefit is now “fully offset” by sales mix and higher shipping costs.
The savings are not booked until 2027. A rebid awarded this fall prices against a market where spot rates sit above contract rates and carriers are selective about the freight they accept.
Consolidating volume can still buy service when rate relief is gone. Knight-Swift said in April that capacity had tightened enough to push shippers toward realigning with large asset-based carriers, and CEO Adam Miller said then that some customers were already locking up peak-season capacity.
O’Kelly framed the rebid as “transportation optimization” and part of a shift “to a more variable cost structure.”
What’s next: Advance plans to open nine market hubs in the third quarter and typically reports that quarter in mid-November. The remaining DC process changes run through mid-2027, the same deadline as the 60-hub target and the first year the carrier savings are due to appear.
AutoZone reports its fourth quarter on September 22, and runs the network Advance’s hubs are measured against. It counted 156 mega hubs on its third-quarter call, each stocking more than 100,000 SKUs, against a target of about 300.
