Mullen Group has bucked a trend among publicly traded fleets by recording record Q1 earnings, including a 9% increase in revenue and 93% surge in net income.

Senior executive officer and chairman Murray Mullen credited the LTL business in particular, as it drove the strong first quarter while maintaining market share and managing rising costs.

“Volumes held steady, backstopped by solid end consumer demand, and we added a couple of tuck-in acquisitions over the past year. Building lane density and critical mass are two important keys to generating a profitable business and I am delighted to report our 11 LTL business units continue to execute to plan. In addition, our specialized and industrial services segment generated solid gains, primarily due to increased investment by the oil and natural gas industry in western Canada,” Mullen said in a press release.

“It’s usually a good sign when the year starts off on a positive note. However, we must be vigilant, and we will maintain a cautious bias because I fully expect there will be no meaningful growth in the North American economies for the foreseeable future, as end consumer demand remains under pressure with consumers pivoting away from buying things to doing things, such as travel and leisure. This means the demand for most freight services will remain subdued and competitive.”

Q1 revenue totaled a record $497.8 million, up from $456.9 million the same period a year ago. Profit was $31.7 million, nearly double the $16.4 million reported in Q1 2022. LTL segment revenue rose 9.8%, logistics and warehousing was up 1.1%, and the specialized and industrial business surged 35.4%. U.S. 3PL business was down 9.1%.

On a conference call with analysts, Mullen said the Canadian economy has yet to see the recession so many were predicting, but there has been a freight recession in North America, most pronounced south of the border. He attributed it to a freight surge in 2021 as manufacturers and shippers overstocked inventory in response to strong consumer buying. As consumers shifted their spend to travel and leisure, demand for freight dropped sharply.

On inventories

“A mismanagement of inventories is the single most important reason for last year’s freight surge and this year’s freight recession,” Mullen explained. “Inventories will be brought into balance and the freight recession will end.”

However, he added “the freight recession we are in is going to continue for a while yet in my view, because there’s not really a demand push and supply is remaining sticky.”

When it comes to inventories, Mullen said warehouses are still full – but often full of the wrong types of inventories. Retailers and shippers need to have the right products on the shelves, not just product on the shelves,” he said, anticipating this will be corrected through the remainder of the year.

On M&A

Mullen continues to assess acquisition opportunities, but not just for the sake of growth. “We do acquisitions for fit, because the price is right, and because we identify that we can derive synergies,” Mullen said. “When we find those opportunities, we’re going to go all in on them. I see no real panic for us to go out and do acquisitions right now.”

He feels opportunities will present themselves, as “Anybody who made the wrong calls last year is on the wrong end of this cycle, and they will pay a hefty price in my view. So, we’re being very picky.”

On capacity and pricing

New equipment may finally be hitting the road, but Mullen doesn’t worry about additional capacity flooding the market.

“In fact, I’d argue the opposite is going to be taking place in this market,” he said. “The little carriers, the ones that are undercapitalized, are going to have a real problem adding capacity because equipment is so expensive and interest rates so high, and rates are down. There’s no way they’re adding capacity. If anything, capacity is going to shrink.”

Because of this, Mullen expects pricing will remain stable, though pricing leverage is gone until demand picks up.

On new energy

Mullen’s specialized and industrial services segment saw a resurgence, and Mullen anticipates it to further benefit from an increase in mining to support the new energy industry.

“I think what’s going to happen is a buildout and transition of our economy from traditional oil and gas, to all forms of energy. We see some good opportunities in the mining business, that has been underinvested in, coming up,” Mullen said.

Mullen stands to benefit from increased mining activity in Northern Ontario and B.C., in particular. “Mining is energy,” he said. “My thesis is, we need more energy – all forms of energy. There’s going to be an increased focus on alternative forms [of energy] and you’ll need mining, not just drilling for oil and gas.”