Federal regulatory changes—such as stricter rules launched last yearon English proficiency requirements—are helping push capacity out of the market, Knight-Swift Transportation Holdings CEO Adam Miller said on an earnings call Wednesday.

The large trucking group told investors on its Q1 earnings call that it has seen a notable tightening of capacity, which is helping address unsustainable rates and non-compliant carriers. Miller said regulatory changes are helping drive capacity reductions and more favorable market conditions, and these effects are still in their early stages.

"The improvement we're seeing," Miller said, "is primarily driven by capacity reduction rather than demand." Otherindustry stakeholdersdescribe this shift as a supply-driven turning point in the freight market.

Among these changes, the industry has seen the Federal Motor Carrier Safety Administration (FMCSA) crack down on non-compliant CDL schools, and Congress has proposedmeasures such as the Dalilah Act, which could codify stricter standards for non-resident CDL issuance and renewal.

"It feels like the conditions are truly in place" to support sustainable rates for quality, compliant carriers, Miller said.

Although Q1 revenue rose 1.4% year-over-year to $1.85 billion, operating income fell 57.1% year-over-year to $28.6 million,the company reported. Adjusted operating income was $49.8 million, reflecting setbacks from unfavorable LTL claims development, weather, and diesel prices, as the company noted last week.

Additionally, there are early signs that demand is beginning to improve. Bid targets have shifted from current pricing levels to a new range of high single-digit to low double-digit percentage increases, up from the low-to-mid single-digit growth targets last quarter.

Miller also noted that several shippers have begun discussions about peak-season support, which is uncommon this early in the year.

"We have more reasons to be optimistic about the industry now than at any time in the past four-plus years," Miller said. He added that the industry is moving away from a situation in one-way freight where carriers flooded in—previously, many market participants operated under different rules and distorted pricing.

As spot rates surged in 2021, many drivers entered the industry without proper training, a problem compounded by questionable safety records among new entrants and harmful business practices by industry players known as "chameleon carriers"—companies that can change identities, such as by shutting down and reappearing to evade responsibility for issues like safety violations, Miller said.

"I just think there's going to be more regulation from the FMCSA in the future... it's necessary," Miller said.