FedEx Freight says tightening truckload capacity is beginning to push heavier shipments back into the less-than-truckload (LTL) network, offering another clear sign that freight demand is stabilizing after a prolonged downturn.
“We are seeing some pretty good encouraging signs that demand conditions are beginning to stabilize and even increase across the industry,” said FedEx Freight CEO John Smith in the recently spun off trucking company’s first ever earnings call held Thursday.
Smith cited ISM manufacturing activity, which notched its highest reading since May 2022 and had its fifth straight month of expansion, as well as truckload spot rates and fleet capacity attrition as leading indicators of the steadied freight market.
The LTL ultimately grew revenue 4.8 percent to $2.4 billion in the quarter ending May 31, largely in part to an 11.5 percent spike in revenue per shipment propelled by a 3 percent increase in average shipment weight.
The revenue jump overcame a 5.9 percent year-over-year volume decline to 86,700 average daily shipments.
Smith attributed the climb in weight to the tighter capacity, stressing, “we’re ready [for a market upturn] both from a driver perspective as well as equipment. Right now, we could add another 10,000 shipments and not have to buy a piece of new equipment.”
The cut in capacity has been accelerated by a nationwide crackdown on trucking compliance that has taken thousands of truck drivers out of service. The Department of Transportation’s policies have been focused primarily on enforcing English language proficiency among truck drivers and closing commercial driver’s license (CDL) schools if their training and safety standards aren’t up to speed.
The new CEO said these policies have largely hit truckload companies, freeing up more volumes to transition to LTL providers. Unlike full truckload firms, LTLs combine smaller shipments from multiple customers into a single trailer.
“The thing about it is, it’s really helping us not only in backhaul, but some of those larger shipments that would normally run as ‘milk runs,’” Smith said, referring to when trucks pick up goods at several stops on a single route before dropping them all off at one customer. “They’re going back to a full truckload, which are pushing those bigger shipments back into the LTL market.”
The bottom line at North America’s largest LTL company fell considerably from 2025 figures due to $205 million in separation costs from FedEx. Operating income declined 66.9 percent from the year prior to $158 million, while operating margin fell to 6.6 percent from 20.8 percent a year ago.
Smith reiterated some of the company’s goals outlined in August aimed at improving the company’s yields and margins. The trucking firm wants to push further into more freight categories: data centers; healthcare; grocery; and SMBs; the last vertical of which Smith called the company’s biggest opportunity.
“We see a clear runway to growth, and the high-quality segments are where we have historically underpenetrated,” said Smith. “Those are attractive areas with attractive margins, and they offer that stronger yield. We’re going to continue to improve our mix over time, which is a key driver of both yield performance and margin expansion.”
In line with the recent quarter’s revenue bump, FedEx Freight expects revenue to grow 4 percent to 6 percent when compared to the seven months ended Dec. 31, 2025.
Most of anticipated revenue growth is expected to come from yield, supported by sustained higher fuel prices stemming from the Iran war, according to Smith. He also highlighted stronger pricing execution and more focused sales efforts as a standalone company.
The higher yields are expected to contribute 2 percentage points to the expected adjusted operating margin of 11.5 percent to 12 percent. For the remaining seven months of the year, FedEx Freight is expected adjusted earnings per share of $2.40 to $2.60, excluding any spin off costs.
Earlier this week, FedEx forecast 11 percent revenue growth for the 2026 calendar year. Adjusted earnings per share is expected to range from $16.90 to $18.10 for the year, with the figures implying 20 percent EPS growth from June through December.
