Covenant Logistics Eyes 2026 Turnaround, Citing Early Rate Gains and Strategic Fleet Reshaping
Covenant Logistics Group navigated a fourth-quarter net loss, yet its leadership struck a notably optimistic tone for the road ahead. The Chattanooga-based carrier (NYSE: CVLG) told analysts that emerging freight fundamentals and hard-won pricing power are setting the stage for a significant operational rebound in the latter half of 2026.
The quarter's results, executives noted, were largely in line with internal forecasts despite headwinds from a protracted federal government shutdown, a spike in insurance claims, and upfront costs for new warehousing initiatives.
"We are observing the market steadily moving toward a balance between shipper demand and carrier capacity. One could argue we're already there," stated Chairman and CEO David Parker during Friday's earnings call. He pointed to meaningful spot rate increases in Q4 and sustained revenue improvement across all business lines through January.
This nascent momentum is translating into contracts. Covenant has already locked in low- to mid-single-digit rate hikes for its expedited fleet, effective this quarter, with more increases anticipated for both expedited and dedicated operations by Q2.
The company is pairing this pricing optimism with rigorous fleet discipline. Following impairment charges on underutilized equipment, Covenant is intentionally shrinking and reshaping its asset-based truckload fleet to boost returns. Capital expenditures are slated to drop sharply to a range of $40-$50 million, with a modestly smaller fleet size expected by year-end 2026.
"A broader industry capacity decline would not surprise us," Parker added, citing regulatory pressures, cost inflation, and insurance market risks. He suggested that inventory restocking and improved corporate earnings in 2026 could further squeeze available capacity, benefiting disciplined carriers.
Within its portfolio, the dedicated segment emerged as a bright spot, delivering its best adjusted operating ratio (92.2) of the year in Q4. President Paul Bunn emphasized a strategic pivot toward higher-service, specialized dedicated contracts—including in agriculture—while stepping back from commoditized freight. The dedicated fleet grew by roughly 6.3% in 2025.
"We're excited by the segment's quarterly progression and the momentum we're carrying into 2026," Bunn said.
The expedited segment, however, lagged expectations with a 97.2 adjusted operating ratio, hampered by lower utilization and the government shutdown. Management expects a sequential margin improvement in Q1, albeit with nods to seasonal softness and weather-related risks.
Another growth lever is the recently acquired brokerage, now operating as Star Logistics Solutions. It fueled a nearly 29% surge in managed freight revenue last quarter. While peak-season costs pinched margins, leadership believes this asset-light model offers crucial leverage and upside potential as the market tightens.
Looking forward, Parker framed 2026 as a year of "execution and discipline," focused on strategic capital allocation and strengthening the balance sheet after a period of acquisitions and buybacks. "I'm more encouraged now than I was ninety days ago," he concluded. "We're seeing new business won at better rates and clear signals of capacity exiting the market. This feels like the start of the industry's journey back to sustainable health."
Industry Voices: Mixed Reactions to Covenant's Outlook
Michael Thorne, Supply Chain Analyst at Veridian Insights: "Covenant's data aligns with our broader checks. The contract rate increases, though modest, are a critical inflection point. Their fleet-rightsizing is a painful but necessary step that should improve asset productivity in a recovering market."
Lisa Chen, Portfolio Manager at Hartwell Capital: "The managed freight growth via acquisition is a smart diversification. However, the '26 turnaround narrative requires a leap of faith. The expedited segment's struggles and the guidance for a seasonally soft Q1 mean investors need patience. The proof will be in sustained margin expansion."
Frank Dukes, Owner-Operator & Industry Blogger: "Here we go again—executives cheering 'capacity exiting the market.' That's code for more small fleets and independents being squeezed out by regulations and costs they helped create. Covenant shrinks its fleet and gets praised for 'discipline.' The rest of us just go out of business. I'll believe this 'equilibrium' when I see it reflected in my own settlement statements."
Rebecca Shaw, Freight Economist at Transport Intelligence Group: "The commentary on inventory restocking and corporate earnings is key. If the macro environment cooperates, these could be the catalysts that turn Covenant's current green shoots into a durable recovery. Their niche-focused strategy in dedicated is where the margin premium will be."