Markets on Edge, Trucking in Turmoil: Heartland Express $HTLD (Reprise)

Trucking has been in a three and a half year depression. It is the longest period of suppressed freight rates in history. I tried to predict the bottom of the cycle based on the historical stocking and destocking cycles and the Covid durable good bullwhip, but that didn’t work this time. You can find my original thesis on the destocking cycle here:

I also updated my writeup on my favorite trucking company, Heartland Express (HTLD) here:

But now the mystery as to why trucking failed to follow past cyclicality has finally been revealed. And the answer is immigration fraud.

In every blue collar field in the US, massive amounts of immigration, legal and illegal, have crushed wages. I have three cousins with their own roofing companies, and I hear the stories about what crews of illegal immigrants can charge for a job. One of my former students has a swimming pool construction company, and he uses illegal immigrant labor, and I hear what he pays and how they circumvent withholding taxes. Tens of millions of new arrivals have devastated the middle class, and for two decades, any conversation on the subject was met with derision. Americans should just learn to code, they should be more competitive, that’s racist, etc.

In just the last couple of months, the US has awoken to the realization that some significant percentage of the 18-wheelers that share their highways are being driven by people who can’t read English street signs, don’t respect traffic laws, and have no legal right to work in the US. This epiphany hit the public consciousness with the preventable death of a family on August 12th at the hand of someone who crossed the southern border in 2018, and obtained a CDL in California without being proficient in English.

This salient event catalyzed an immediate response from the Department of Transportation and Homeland Security. The two departments initiated a joint task force to combat the presence of these unqualified and dangerous drivers on US highways. A recent three day operation in Oklahoma found that out of 500 trucks inspected, 130 drivers had invalid CDLs. Shockingly New York even issued licenses without any proof of identity at all to a “No Name Given.” If this is a representative sample, as much as one fourth of the truck drivers on the road have no right to be there.

I have been fascinated by this topic ever since my road trip this summer. It was noticeable to me at the time that truck drivers were blasting through construction areas without slowing down. I remember thinking to myself that the highways were never like this before, but I didn’t think much more of it until the aforementioned crash in Florida on August 12th. Since that time I have been going down the rabbit hole of Serbian organized immigration crime, Russian remote freight brokers, and of course, the Biden Department of Justice providing a clarification in 2023 that immigration status is not a sufficient reason to deny a small business loan.

But I don’t write a politics substack, I write a finance substack, and the purpose of this article is to identify why my Heartland Express thesis hasn’t worked so far, and to see if it will work soon.

The connection between labor and capital is much less straightforward. Wouldn’t more labor increase the return of capital? Shouldn’t it be good for the profits of freight haulers if they can pay less for labor? The answer was staring me in the face since August 12th.

For legal truck drivers, team driving is not very common. Estimates place team driving at approximately 8% to 10% of freight for most of the last two decades. Only in expedited cargoes can team driving reach 50% of volumes. Most of the US truck driving industry operates solo, and each shift is limited to 11 hours per day. This is not true with illegal immigrants.

Illegal immigrants operate more often in family teams, this allows them to maximize the earnings of the family. In doing so, each truck is operating much more than the 11 hours per day which is the legal limit for solo drivers. The presence of illegal immigrants in truck driving has meant that the same amount of freight is moved by fewer trucks. This has depressed not just the wages of US truck drivers, but it has depressed the freight hauling rates overall and reduced the returns of companies like Heartland Express.

Now that there is a crackdown on illegal immigrant drivers, things are moving very quickly. Most illegal immigrants don’t want to be deported, as that means they can never return to the United States. I have heard reports that many are hunkering down and hoping that Republicans lose the next presidential election in 2028. Craig Fuller runs the freight data service Freightwaves, I have been following him ever since I first started looking into Heartland Express. He is claiming that across the entire industry, a significant portion of truck drivers are not showing up to work out of fear of being deported.

Craig’s posts over the last two years have been mostly non-political. I have no reason to distrust his information.

During the Biden administration, work authorization was granted to about six million of the ten or twenty million people who entered the country illegally. This was done under humanitarian parole, temporary protected status, or NTA release / asylum pending. This group of people is difficult to talk about precisely, because the media likes to equivocate. But one aspect of these different legal classifications is that the immigrants themselves have no idea where they stand.

Another anecdote claimed that immigrant truck drivers were refusing to take any job unless it was entirely within California.

The freight spot rates have already started responding, and we are still about six weeks early for this to be caused by Christmas seasonality. You can’t see the change yet on the seven day index, but you can see it on live tender data.

You can see the price depression of the cost of freight per mile that started from the 2022 peak. The narrative until now had been that excess capacity had come into the freight market post Covid, and until that capacity left the market, prices would remain low. Now, after the longest freight recession ever, sudden immigration enforcement has revealed that the reason wasn’t excess capacity of trucks, but the hot seating of illegal immigrants suppressing rates.

According to Craig’s live data, there are many regional areas where spot rates have increased by fifty percent or more for jobs covering the next four days.

Will this situation last long enough to affect Heartland Express’ earnings? I find it unlikely that the immigrant drivers who have gone into hiding will return to the market en masse. They especially won’t return to the roads when their immigration attorneys and Serbian newspapers are telling them not to.

I also find it unlikely that DHS and DOT will stop this crackdown. They are being bolstered by very successful operations, and the public is cheering them on. Most voters do not want their loved ones dying on the highway because California gave CDLs to people who can’t read the sign that says “stopped traffic ahead.”

But trucking costs, like electricity costs, permeate every part of the economy. If freight rates increase significantly, it could spur on a spike of inflation, even when tariffs failed to do so. Freight costs are currently about 3.3% of the average grocery bill. Since this influx of illegal immigrants drivers, freight rates fell by $0.30, but freight costs rose 40%. That would imply that a a return to equilibrium would bring freight spot rates from $2.30 a mile to $3.64 a mile. That would imply that the average grocery bill would increase by about 2.3%. If that occurred over a short period of time, the public might notice. Freight rates might even have a temporary spike to enormous heights as carriers have to lure legal truckers back to the market after years of replacing them with immigrants. If the industry needs to lure new young people to become truck drivers, the training programs can take a couple of months.

Would a spike in grocery bills be enough to turn Trump away from this set of policies? It isn’t likely. I’m not even sure the media would correctly attribute the price increases to freight rates when the tariffs are the bogeyman of the free trade globalists. The average CNN or MSNBC viewer might come to believe a completely different story than what the freight data would imply.

A tripling of freight rates on a short term squeeze could see a spike in grocery bills by 6% or more, and probably settle down to a 2.3% price increase once the market equilibrates to legal truck drivers coming back into the market. I throw those numbers out as a trained economist who has done zero statistical regressions.

Aside from grocery bills, the US manufacturing sector would be significantly affected. What Trump giveth with tariff protectionism, he taketh away with freight costs. Domestic trucking can account for up to 6% of manufacturing costs. A doubling of freight costs could reduce US manufacturing output by 3%. Fortunately manufacturing is only 8.4% of GDP, so it would be a rounding error to an economy growing at 3.8% according to the Atlanta Fed Now estimate. Unfortunately, the total impact of freight rates rising to $3.64 a mile would be somewhere in the neighborhood of a $324 billion decrease in productivity, or about 1.1% of GDP.

This current volatility in the freight market has the potential to significantly reduce 2025 and 2026 GDP growth. But there are some mitigating factors. Car accident deaths in Los Angeles are 25% lower for the first six months of 2025 than the same period in 2022. This reduction in destruction will trickle through to insurance rates eventually, a 25% decrease in car accidents would add back $25 billion to GDP from trucking insurance premium decreases over time. The decrease in car accidents from cars and trucks combined would add back about $50 billion to GDP from the $324 billion lost to increased freight costs.

It could also speed up reshoring efforts. Without black market labor to drive trucks, it might not make as much sense to have goods delivered to the Port of Long Beach from Vietnam. But again, I am veering away from the specific focus of what this means for Heartland Express.

This is a trucking market that is still at depressed volumes. Twenty percent of trucking is homebuilding, and homebuilding activity is depressed by interest rates. After Trump gets to choose a chairman of the Federal Reserve, we are looking at seeing interest rates approximately 1.3% lower than they are today. Stephen Miran, the new frontrunner to be Trump’s choice, recently stated that he believes a 0.5% real rate of interest is optimal.

Despite the dramatic calls that Trump is going to stack the Fed with loyalists who will veer away from sensible policy, a 0.5% real rate of interest was the norm from 2014 to 2018. Only a spineless partisan hack would pursue the insanity of a -1.0% real rate of return like Jerome Powell did for Biden, or Bernanke did for Obama. This is probably not the place to rehash the interest rate debate. But we know that rates are moving lower, and this will benefit freight companies in 2026.

Back to Heartland Express, a 30% increase in freight rates from $2.30 to $3.00 would bring HTLD revenue from $862 million to $1.08 billion, and swing GAAP net income from a $43 million loss to a $41 million profit. That would be sorely welcomed by the market, and would probably drive a multiple rerating from a price to sales ratio of 0.71x back to something more reasonable. In the near term, a return to 1.00x price to sales and $1.08 billion of revenue would imply a share price of $13.95.

The market has put HTLD into the penalty box after two acquisitions, and it might take some time to return to historical multiples of 2.0x price to sales. The dedicated investor base liked the midwestern founder CEO a whole lot better before the acquisitions, but time and free cash flow can heal all wounds. In a couple of years, a return to a price to sales ratio of 2.0x, and a return to $1.2 billion of revenue would imply a share price of $31.01, not including the modest share buyback program that was initiated to support the share price.

Heartland Express (HTLD) $8.41: $13.95 short term price target

Heartland Express (HTLD) $8.41: $31.01 by the end of 2028