J.B. Hunt Transport Services, one of the largest truckload and intermodal carriers in North America, saw its over-the-road (OTR) segment post a loss in the second quarter even as spot capacity rates surged roughly 40% above year-ago levels, underscoring the dislocation between the carrier's contract-heavy model and a rapidly shifting freight market.

Josh Fellin, who oversees J.B. Hunt's JBT over-the-road segment, said the business has grown double digits for five consecutive quarters but was caught in a sharp market inflection as rising spot costs overwhelmed its drop-trailer model, which relies on independent contractors under the company's authority as well as third-party capacity.

"We posted a loss inside Q2. We've had a successful run inside JVT, our OTR segment. We've grown double digits, I think, for the last five quarters. So we've taken share and our model that we use has really played out. We're just caught in that flip, if you will, of the inflection in the market," Fellin said in an interview with FreightWaves.

Rate Rally: Direction vs. Magnitude

The National Truckload Index (NTI), FreightWaves' benchmark measure of spot market truckload pricing, was up 60% year-over-year at points in June — a drastic change from the prior year when the industry was mired in a prolonged freight downturn. Fellin attributed the direction of the rate rally to supply-side pressures, including continued regulatory enforcement, but said the magnitude reflects four years of compressed margins and cost inflation.

"If you go back to '19, you'll see it quoted anywhere from 48% to 60% on a cost-per-mile basis to operate a truck. And the rate environment that we've been in inside the marketplace, same period comparison might be up 5% to 6%," Fellin said. "So really compressed margins have led to a whole lot less investment. And that really is driving the magnitude of increase you're seeing because quite frankly, the industry needs it to start reinvesting in their equipment."

'Early Innings' of Recovery

Fellin placed the current upcycle firmly in its early stages, noting that contract rates still lag spot rates and that full pricing repair will require at least one more bid season — the annual negotiation cycle in which shippers and carriers lock in committed volumes and rates for the coming year.

"To fix pricing at current cost levels, it's going to take another bid season," he said. Intermodal and dedicated contract economics tend to move later than the spot market, Fellin added.

He noted that Spencer — referencing J.B. Hunt leadership — said on a recent earnings call that demand for the company's services is strong, even as broader market demand remains debatable. While spot rates have cooled somewhat, they remain roughly 40% higher year-over-year. Contract rates are moving but in what Fellin described as a "choppy" fashion.

Driver Market Tightening

Tightening in the third-party capacity pool has quickly spilled into J.B. Hunt's own driver pipeline, Fellin said. He warned that driver pay — which rose significantly in 2021 and 2022 but has seen only gradual increases since — is likely to see another meaningful step-up in 2025 and into 2027.

"With supply where it's at, with the driver pool shrinking as an industry, you're liable to see a pretty good step change needed in driver pay this year and into 2027," Fellin said. That added cost pressure, he noted, compounds the rate relief carriers still need to earn acceptable returns, creating a counterbalancing force that could limit how aggressively the industry expands capacity.

Fellin also referenced concerns about carriers that cut costs deeply during the downturn. "Our concern was, well, we never want to cut into the muscle. And you might have had carriers out there that actually did that because they had to, to survive. If you start cutting into muscle, it's going to create more of a lag of your ability to grow when it's time to grow."

He emphasized that carriers still need convincing returns before committing to growth. "I know spot rates are up. I know contract rates are moving up based on the data that we see, but there's still some room to go to get returns where I think they need to be to have a healthy appetite for growth in the truckload space."

Fleet Growth: Barriers for Small and Large Carriers

Smaller carriers face two headwinds absent in prior upcycles, Fellin said: financing costs are far higher than they were in 2020, and tractor availability remains constrained. Large carriers, meanwhile, will demand a clearer line of sight to sustainable returns before committing capital.

"We're not going to just grow our top line for sake of our bottom line," Fellin said, echoing remarks attributed to J.B. Hunt's broader leadership, including references to Shelley Simpson's prior comments on disciplined growth. The company's preferred expansion targets remain dedicated contract services (DCS) and intermodal rather than open-market OTR.

"You haven't seen much growth in the OTR market. You've seen larger carriers transition more to dedicated, which is a much more sustainable economic model," Fellin said. "If we could start to see less volatility in the pure OTR market, I don't think you're going to see that grow. But if a few changes to how the market behaves in less wild swings, you can build a good business."

Knight-Swift Parallel and Industry Context

The discussion referenced Knight-Swift's recent earnings, where the carrier reported a 300-plus basis point improvement in its OTR for-hire operating ratio. Knight-Swift indicated a preference for operating trucks more efficiently rather than expanding the fleet, and was noted at roughly 30% tender rejection rates — the share of electronically offered freight loads turned down by carriers — which is twice the industry average, suggesting greater selectivity but a reluctance to lean into growth.

Dr. Jason Miller of Michigan State University, appearing on FreightWaves earlier that week, suggested large fleets might quickly seek to overcorrect by adding capacity. However, Fellin's channel checks indicated a more cautious industry posture.

Over the last decade, the largest carriers — those with fleets of 1,000 trucks or more — have barely added capacity, according to FreightWaves SONAR data. Companies with significant advantages, including J.B. Hunt, Knight-Swift, and the formerly independent U.S. Xpress, have chosen to prioritize operating efficiency over fleet expansion.

Electric Vehicles: Not Ready for Long-Haul

On battery-electric trucks, Fellin said the technology is not ready for high-utilization, long-haul applications and that meaningful adoption remains "quite a ways off."

"From the long haul, not right now. I think still quite a bit of work needs to be done from more on the capabilities and to the cost," he said. J.B. Hunt is actively testing zero-emission vehicles (ZEVs) in shorter-cycle applications such as drayage and localized dedicated routes where charging infrastructure is more accessible.

Navigating Shipper Relationships

Fellin acknowledged the strain on shippers as transportation budgets face pressure from both rising freight rates and energy prices. J.B. Hunt is focused on honoring its contract commitments while working with customers on rate relief where needed — conversations Fellin described as difficult but necessary.

"Shippers are really stressed right now. Obviously, their budgets are being blown up, one, because of what energy prices are doing, and two, what's happening in the marketplace," he said. "We're going to do what we said we would do. We're focused on accepting what we were awarded and honoring our commitments, but doing the best we can to work with the customers where we need relief."

Looking ahead, Fellin said the competitive landscape for qualified drivers will intensify, with ride-hailing platforms such as Uber and Lyft, as well as delivery services like Instacart, also vying for the same talent pool. "I think there's going to be more competition for qualified drivers than there has been based on all these changes," he said, adding that pay will need to be addressed again to attract and retain talent.

Source: FreightWaves