Risk Driver: Market Tides
Market Tides are the outside forces, like interest rates, industry cycles, and input prices, that lift or lower demand and pricing for a whole industry at once. It's the first driver in the Risk force of the Value Creation Flywheel. This issue looks at a tide that went out hard: trucking. It also shows why, even as that tide turns, the outlook matters more than the rebound.
Market Tides is the first of the three Risk drivers.
Market Pulse: Clinical Case Study
The Trucking Industry's Low Tide
Trucking just lived through almost four years of low tide. During the pandemic boom, new carriers poured in. When demand normalized, the capacity stayed, and rates fell below the cost to run a truck.
Same downturn, different outcomes: Carriers with contracted freight, dense LTL networks, or real scale stayed profitable. Small truckload fleets living on the spot market did not.
The bottom line: A small truckload owner who tried to sell in 2024 brought trough earnings to a buyer already pricing in more trouble. That is the double hit of a falling tide: earnings and the multiple shrink at the same time. Same company, same owner, wrong tide.
Source: ATRI, An Analysis of the Operational Costs of Trucking, 2022 to 2025 data. Averages reflect carriers participating in ATRI’s annual survey.
It took two years for the tide to erase the margin, and one year of recovery bought back less than half a point.
What the turn tells us
Five takeaways from recent analyst and industry research:
The recovery is supply-led. Rates are rising because carriers left, not because freight came back. That changes what to watch.
Whether it lasts depends on capacity staying out. Bulls argue that tougher licensing rules, safety enforcement, and insurance costs will keep trucks from rushing back. Bears warn that if capacity returns at its usual pace, the rebound fades.
Costs reset higher. Insurance, wages, and equipment keep climbing. Rate gains have to outrun them, and not every carrier will manage it.
Some headwinds are structural. Rail is winning more long-haul freight, and North American trade terms are less certain. A tighter driver pool cuts both ways: it raises costs but supports rates.
Buyers are pricing off the trough. Deal advisors report that private transportation valuations still lean on trailing results, which reflect the downturn. Sellers who want credit for the recovery have to build that case themselves.
Between the lines: Respected analysts disagree on how strong this upcycle will be and how long it will last. When the experts split, don't bet the business on one forecast.
Plan for more than one tide
A scenario analysis maps two or three plausible futures and decides now how you would respond to each. For a carrier today, it might look like this:
Scenario: Durable recovery. Demand firms while capacity stays tight, so rates hold, and contracts reset higher.
Scenario: Fade. Capacity returns and rates slip back.
Scenario: Structural squeeze. Volume drifts to rail while costs keep rising.
For each scenario, decide: pricing and contract terms, capital spending, debt, staffing, and whether a sale makes sense.
Why it matters for value: A buyer discounts what they can't see. A business that has mapped its scenarios and can show a plan for each gives the buyer less to discount.
The bottom line: The goal isn't to guess the tide. It's to know what you'll do whichever one shows up.
Build an early warning system
Scenarios tell you what to do. An early warning system tells you when.
Trucking's warning signs were visible well before margins collapsed. The owners who fared best treated those signs as tripwires, not trivia.
The signals I'd put on a monthly dashboard:
Signal: Capacity flooding in. New competitors, licenses, equipment orders.
Signal: Pricing slipping. Bid win rates, discounting, spot vs. contract pricing.
Signal: Your customers’ demand. Their order books, inventory levels, financing.
Make it a system, not a hunch:
Pick a handful of signals that move before your revenue and margins do.
Tie each one to a scenario. When two or three flash together, you know which plan to pull off the shelf.
Set tripwires. "If bid win rates drop below X for two quarters, we move to the fade plan."
Give it an owner and a rhythm. Review the dashboard monthly and the scenarios quarterly.
The key: Decisions made before the tide turns are calmer and cheaper.
The Sawtooth Insight
Buyers pay for a strong market only as far as they believe it will last.
Every business rides a tide. What differs is how much. When I value a business, I measure that exposure three ways:
Tide impact. How much do revenue and margins move with outside forces like rates, cycles, and input prices?
Mid-cycle earnings. What does EBITDA look like at an average point in the cycle, not this year?
Ebb protection. Contracts, payment terms, customer mix and cost flexibility that hold when the tide reverses.
Timing matters too. Selling into a rising tide, with backlog under contract, is the best seat in the house. Low tide is harder, but not always the wrong time. If the whole market is down, you sell at a trough multiple, but you also reinvest in diversified public markets at trough prices. You swap one concentrated, cyclical asset for a diversified portfolio at a discount.
Looking Ahead: Issue #6
This closes the Risk force for now. Issue #6 turns from the forces that drive value to Execution: how you turn what you know into action. Scenarios and warning signals are only worth something if someone acts on them.
Value creation is not an accident. It is an architecture.
Best,
Jeremy
Principal, Sawtooth Value Advisory
