Covenant 2027 contract rates and expedited team capacity

The News

Covenant Logistics expects truckload contract rates to rise by double digits again in 2027, CEO David Parker said on its third-quarter earnings call. The carrier is also shifting most of its expedited team trucks from one-way freight to dedicated contracts.

About 60% of its expedited tractors now run on committed contracts, up from about 25% at the start of the year.
Rising costs for drivers, trucks, trailers and insurance are putting pressure on margins. “You can’t increase rates 15% and get two points better in margin,” Parker said.

The details

The shift means fewer Covenant teams are available for one-way expedited loads. President Paul Bunn said the company has added about 250 dedicated team trucks this year while cutting about 300 over-the-road one-way teams.

Dedicated contracts run for at least two years, with many lasting four. “They all got minimums,” Parker said.
Covenant's average expedited fleet fell 21% to 677 tractors in the third quarter. Expedited revenue, excluding fuel, dropped 12% to $70.6 million.
Finding team drivers remains a challenge. “There's no teams. And it's very difficult to get the teams,” Parker said.

The same combination of higher rates and a smaller fleet is playing out across Covenant’s truckload business. Freight revenue per total mile rose 19.8% to $3.03, while the average truckload fleet shrank 8.9% to 2,186 tractors.

Truckload freight revenue, excluding fuel, fell 3.4% to $166 million.
Across the market, shippers renewing truckload contracts recently paid about 12.8% more than on their previous contracts, compared with a 4.1% increase a year earlier.
“Driver capacity is tight, and the cost of recruiting, retaining and compensating drivers is increasing significantly,” Parker said in the earnings release.

Covenant is among four publicly traded carriers that have reduced their one-way fleets over the past year, with cuts ranging from 9% to 37%.

Werner Enterprises cut its one-way fleet 37% to 1,673 trucks, while its dedicated fleet grew 44% to 6,995.
Schneider National's network fleet fell 14% to 3,296 trucks. Marten Transport's truckload fleet fell 9% to 1,507 tractors.
Knight-Swift Transportation has 4% fewer tractors overall. It plans to open its 2027 bids with requests for low- to mid-double-digit increases.

Worth noting

Parker expects federal enforcement to push more trucks out of the market. He estimates that about 3% of capacity has already left, with another 3% to 4% expected to follow.

He also claimed that 30% to 40% of trucks on the road are “cheating on ELDs,” the electronic logging devices that track drivers' hours. Parker expects the Federal Motor Carrier Safety Administration to introduce third-party certification for ELD manufacturers.