Covenant Logistics’ latest quarter underscored just how unforgiving the truckload market remains. For the three months ended Sept. 30, the Chattanooga-based carrier posted revenue of $296.9 million, up 3% year over year, but GAAP earnings slipped to $0.35 per share ($0.44 adjusted) as margins tightened across core asset-based operations.
The squeeze showed up most clearly in the combined truckload segment, where operating income fell to $9.2 million and the segment operating ratio deteriorated to 95.4% from 88.4% a year ago. Dedicated continued to grow revenue (+10.8%) but produced thinner margins, while Expedited volumes and utilization softened. Asset-light businesses helped cushion the blow: Managed Freight revenue rose 14% and Warehousing held roughly steady.
Management pinned the pressure on higher per‑mile costs and under‑utilized equipment. Insurance and claims expense climbed to 4 cents per mile, up 24% year over year, and seating costs, maintenance and depreciation all moved higher—particularly within specialized, short‑haul dedicated accounts that run heavy freight. Those dynamics, combined with lower utilization, offset a modest increase in revenue per mile.
Results also reflected portfolio housekeeping. A $3.8 million litigation settlement tied to a former factoring unit boosted discontinued operations, but that was largely offset by $3.7 million of severance, facility exits and software write‑offs tied to pruning lower‑return contracts. Net indebtedness increased to about $268 million on Sept. 30 from year‑end, driven by acquisitions and share repurchases; management plans $15 million to $20 million of net equipment capex in Q4.
The near-term outlook remains cautious. Covenant expects fourth‑quarter adjusted EPS to be sequentially lower, citing three external headwinds: rising credit losses in its minority leasing affiliate serving small carriers; the ongoing federal government shutdown’s drag on Department of Defense freight; and elevated claims accruals. A modest holiday peak is still anticipated in Expedited and Managed Freight, and the company reiterated plans to contract truckload capacity while leaning into asset‑light growth.
Two macro currents from the past 48 hours frame that guidance. First, fuel has turned supportive: the U.S. on‑highway diesel average fell again this week to $3.62 per gallon, easing operating costs and partially offsetting the decline in fuel‑surcharge revenue Covenant flagged. Lower pump prices can flow through quickly on the cost line even as surcharge receipts lag contractual resets.
Second, the shutdown risk is real for carriers tied to federal freight. As of Oct. 20–22, Washington remained in a funding impasse, with national security agencies beginning furloughs while White House officials signaled a possible end this week. Any prolonged disruption can slow DOD tendering and settlement cycles, a specific risk Covenant highlighted.
Market signals elsewhere suggest divergent demand/pricing power by mode. In LTL, Old Dominion announced a 4.9% general rate increase effective Nov. 3, an indication that premium networks maintain some yield leverage even as truckload carriers battle oversupply and fickle spot demand. For shippers, that split can translate to steadier LTL contract renewals but continued opportunities in one‑way TL—provided service needs are flexible.
Capacity attrition is also creeping higher at the fringes. New data this week from Equipment Finance News showed Subchapter V small‑business bankruptcies up 6% year over year through the first nine months, with at least 41 freight carriers filing Chapter 11 over the past two quarters. That aligns with Covenant’s view that exits among smaller operators are accelerating—a dynamic that could ultimately rebalance rates, but not without near‑term friction.
Bottom line for fleets: Q4 may bring a seasonal uptick, but sustained margin repair likely hinges on continued discipline in fleet sizing, taming insurance severity and capitalizing on cost relief from fuel. For shippers: expect Covenant to prioritize mix and returns—dedicated and managed freight—while it trims lower‑yield truckload exposure, which could affect lane coverage but should support service on strategic accounts.
Note: Covenant will host its earnings call on Thursday, Oct. 23, at 10:00 a.m. ET.
Sources: FreightWaves, Covenant Logistics/GlobeNewswire, Associated Press, Reuters, FleetOwner, U.S. Energy Information Administration, Investing.com, Equipment Finance News
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