This morning, Murray Mullen, CEO of Mullen Group, joined day three of RBC’s Canadian Automotive, Industrials & Transportation Conference.
Demand outlook solid; no sign of recession
"Warehouses are very busy". Mr Mullen today reiterated that he sees no signs of a freight recession at the moment, and while that may change, there are no signals as of yet. Mr. Mullen indicated that MTL's warehouses are "packed full", a positive read through on tight capacity and pricing in our view. While we could see freight demand slow reflecting macro headwinds in the back half of the year, we are positive on current strength and see upside to Q2 results as well as to guidance should current strength continue during the remainder of the year.
Supply chain issues constraining volumes
Management noted that supply chain issues are putting warehouse capacity at a premium. Mr. Mullen noted that bottlenecks throughout the supply chain are affecting transportation networks, and MTL's ability to open capacity and drive volume growth. Key however is that robust demand and increased capital spending are putting warehouse capacity at a premium. Mr. Mullen expects to capitalize on this dynamic via higher pricing - a positive in our view into the back half of the year.
Focusing on freight that fits the network
With capacity tight, MTL cherry-picking freight. Given the significant supply chain issues noted above, mgmt indicated that they are finding it difficult to find capacity to satisfy market demand for transportation. This is driving a change in strategic focus at MTL to choose business that better fits its network. Our view is that this strategy will drive higher pricing as well as increase fluidity and better margins. While supply chain issues are negatively affecting capacity throughout transportation networks, our view is that MTL's shift in focus and its warehouse capacity will drive solid results during the remainder of the year.