Covenant Logistics’ leadership is bracing carriers for a rough finish to 2025 even as they argue the ingredients for a healthier market are finally falling into place. On the company’s third-quarter call, CEO David Parker and President Paul Bunn said the industry is entering a period where supply is being constricted by policy and economics — and that means margin pressure now, with pricing power later. As Bunn put it, there’s going to be “pain before the gain.”
The warning comes alongside Covenant’s Q3 scorecard. The Chattanooga-based carrier reported essentially flat asset-light results and softer truckload margins, citing higher insurance, wage and equipment costs and too much unproductive iron. Dedicated revenue rose year over year as fleet count grew, while expedited remained under pressure. Management said it is pruning or exiting underperforming truckload contracts, expecting a modest contraction in its combined truckload fleet and more investment in asset-light businesses. Insurance expense per mile was up 24% and equipment-related expenses up about 15% year over year, underscoring the near-term margin drag.
What flips the script, in Covenant’s view, is accelerating supply discipline driven by Washington’s recent clampdown on non‑domiciled commercial driver licenses and stricter enforcement across the board. Parker and Bunn said they’re already seeing short bursts of spot price firmness in markets affected by the enforcement push, and they expect more visible capacity attrition as big states finalize their playbooks. In parallel, they cited signs that some customers are proactively raising rates on select lanes over capacity concerns — Covenant said it has won rate increases of roughly 2.5% to 4% on a handful of accounts in recent weeks.
Fresh third‑party reads back up parts of that thesis. ITS Logistics’ October report flagged early spot‑rate bumps tied to non‑domiciled CDL enforcement and projected tighter capacity into 2026 as bankruptcies mount and the driver pool ages.
Demand, meanwhile, remains choppy. The American Trucking Associations’ September tonnage index slipped from August and was essentially flat with a year earlier, a reminder that freight volumes have not yet given carriers much help heading into peak.
Even so, the bid and pricing backdrop is getting noisier. Covenant told investors its bids have climbed since late summer and that some shippers are signaling concern about future coverage. The company also cautioned Q4 would likely underperform seasonality because of elevated claims, government‑shutdown impacts to its Department of Defense freight, and pressure in brokerage before asset rates catch a tailwind.
The market’s mixed state showed up elsewhere this week. Knight‑Swift’s results reflected progress in LTL and warehousing while its core truckload operations remained under insurance and claims pressure — another data point that asset‑based carriers are still grinding through the bottom.
Investors took note of the near‑term headwinds. Covenant’s shares fell about 9% on Thursday following the report and commentary, while Knight‑Swift traded lower as well.
Why this matters for fleets and shippers: if federal actions continue to thin the driver pool and tighten on‑road compliance, the slow bleed of capacity could turn into a more pronounced squeeze just as rates start to reset. For carriers, that argues for conserving cash, tightening network discipline and prioritizing customers willing to move on price now. For shippers, it suggests hedging by locking in coverage on sensitive lanes before enforcement effects and equipment costs filter more fully into 2026 contracts. The next few months may sting — especially in brokerage and for fleets with aging equipment — but the ingredients for a firmer 2026 are building.
Sources: FreightWaves, Covenant Logistics, Investing.com, Zacks, ICIS, GlobeNewswire (ITS Logistics)
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