Mullen Group’s Q2 revenue and net income slid as freight demand softened and pricing normalized.
The company reported $494.3 million in revenue for the quarter, down 5.2%, year over year, and net income was $36.5 million, a 14.5% decline.
“This was another very good quarter for our organization, especially taking the slowing economy and changing consumer spending patterns into consideration, generating quarterly revenues of nearly a half a billion dollars,” Murray Mullen, chairman and senior executive officer, said in a release. “Our leaders, in fact all of our people, understood the changes occurring in the market and adjusted accordingly, ensuring we captured market share but at the same time maintained margin. I could not be more pleased.”
While there are no signs an economic downturn is imminent, Mullen said the company is closely watching how rising interest rates will affect consumer spending.
“While there are valid reasons to believe that the economy will continue to defy the recession prognosticators, we remain on alert,” Mullen said in a press release. “The high interest rate policy, adopted by central bank officials, does have the potential to really negatively impact the consumer pocketbook. Under this scenario economic growth would stagnate, or even decline, leading to very competitive markets, which is the exact opposite of 2022. But thus far we see no evidence that a downturn is imminent.”
Fuel surcharges drop significantly
By segment, LTL revenue was down 8.2%, logistics and warehousing dropped 8.8%, U.S. 3PL revenue fell 11.2%, and the specialized and industrial segment saw revenue improve by 6.8%. But on a call with analysts, Mullen attributed most of the top line declines to lower fuel surcharges and year-ago comparisons that were extraordinary due to a tight market and supply chain disruptions. Against the five-year historical average, Mullen noted revenues and profits were very strong.
Mullen joined the call with analysts from a new 36,000 sq.-ft. Apps Transport warehouse in Kamloops, B.C., which will serve the B.C. interior. Lower freight volumes have stemmed from shifting consumer spending habits – less spending on goods, more on services – and business spending has also changed, Mullen noted.
“[Businesses] realized late last year they miscalculated their supply chain requirements, and began to right-size inventory levels after ordering way too much in 2021-2022. This led to lower freight volumes and more competitive pricing in 2023, which is the exact opposite of last year,” Mullen explained. “We went from a freight boom in 2022 to a freight recession in 2023, all within a few quarters.”
Rising interest rates have yet to break the consumer, Mullen said. And businesses will soon have to replenish inventories, especially since the B.C. port strike has stalled imports and exports.
“Warehouses are emptying fast,” Mullen said. “This could resolve the Canadian freight recession awfully quickly.”
Mullen is hoping for a quick end to the port strike, as Canada’s west coast ports have limited capacity to unload ships – and the backlog of ships needing to be unloaded is quickly building.
“We need them back to work,” he said of striking workers. “Most of the freight we’re hauling now is emptying out the warehouses…You’ve got quite a few ships backed up there right now, so this could take – from a flow of traffic perspective – quarters, not weeks.”
While consumers have yet to rein in their spending in the face of rising interest rates, many trucking companies are struggling with higher rates, which will create some acquisition opportunities, Mullen predicted. The company is particularly interested in adding companies with transload access.
“If you overextended yourself in 2021-2022 and thought that was a sustainable market, you’ve overextended and now you’re in trouble,” Mullen said. “Those are the ones that will pay a hefty price in this market. The market has now normalized and if you thought last year was going to be the new trend, you’re probably in a lot of trouble.”
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