The US trucking market, which has been in recession for more than a year now, is poised to recover … at some unknowable point in the future.
That’s the kind of answer that experts in the field will give when pressed to predict the end of the current freight recession because most have already trumpeted an imminent rebound and been burned. The timid tiptoeing toward calling the bottom of the trucking cycle will slowly gain more confidence if recent trends hold up. The whisper of green shoots can be heard now, although it’s usually prefaced with caveats and a plea for truckers not to get too excited.
“We’re no longer going to be deteriorating anymore,” Bob Costello, chief economist for the American Trucking Associations, said in an interview. “There’s a chance we are at the beginning stages of that, sort of, that cycle changing.”
The duration of the slump has caught many industry watchers by surprise. But then again, this long downturn was preceded by one of the most extraordinary boom periods for the supply chain.
The surge of goods that consumers purchased during the pandemic caused freight volume and rates to spike. People were cooped up at home during Covid-19 lockdowns, showered with stimulus dollars and turned to online shopping for comfort. The avalanche of treadmills, grills, cornhole sets and patio furniture choked ports, rail yards and trucks and almost broke the supply chain. Thousands of new trucking companies popped up to fill the need.
The reverse of this trend was almost as drastic. After lockdowns, people were suddenly free to venture out of their homes, and the term “revenge travel” was born. Consumers — burned out on playing cornhole and grilling — also spent their stimulus dollars on dining out and going to concerts. These activities fall into the service category, which doesn’t require much transportation. Retailers were slow to grasp this spending shift and ended up with too much inventory. Trucking companies that had profited handsomely from the spike in freight rates were suddenly losing money.
The cause for renewed optimism is anchored around the rise of port activity. Consumer spending is holding up amid higher interest rates and above-normal inflation. People are having to buy things again along with their entertainment. Cross-border cargo is robust as Mexico attracts nearshoring investment. Inventories also have been pared and may now require restocking.
“The inventory cycle is much better than it was a year ago,” Costello said.
US ports handled the equivalent of 2.02 million 20-foot containers in April, up 13% from a year earlier, and the port volume in May likely rose about 8% from a year earlier to 2.09 million containers, according to the National Retail Federation. That would be the highest level since August 2022. Last year, port volume plunged 12.8% from 2022. The increase in demand is reaching the for-hire trucking market where the tonnage index rose 1.5% in May from a year earlier, the first year-on-year increase in 15 months, according to an ATA report. Costello, though, is quick to point out that one month doesn’t make a trend.
Costello is still cautious because drags on demand still linger. Housing starts have declined as the interest rate on a 30-year fixed mortgage has risen to 7.25% from less than 3% in 2021, according to Bankrate.com. Manufacturing has been contracting, except for a blip this past March, since late 2022, according to the Institute for Supply Management.
The other side of the demand-supply coin is trucking capacity, which is still elevated after thousands entered the market when freight spiked. The government stimulus for small businesses coupled with savings from the big profits earned during the pandemic have helped truck companies cling to life even as they lose money on loads. The average cost per mile for a carrier is about $1.75, not counting fuel, while spot freight rates are about $1.55 a mile, Jared Weisfeld, chief strategy officer at the freight brokerage RXO Inc., said at a Wells Fargo conference earlier this month.
Costello estimates that about 30,000 trucking companies have left the industry since the downturn. That may sound like a lot, but there are about 350,000 trucking firms with operating authority, according to the Federal Motor Carrier Safety Administration. About 95% of those have 10 or fewer trucks.
“We've continued to see carrier exits,” said Derek Leathers, chief executive officer of Werner Enterprises Inc., an Omaha, Nebraska-based trucking company. “That has led to a situation where we're closer to the end than the beginning.” Werner is doing its part with plans to reduce its fleet by as much as 6% this year.
After many false starts and broken forecasts, the nascent increase in freight demand and the decline of trucking supply have hit an inflection point that underpins a trucking rebound. Yes, recovery is around the corner. Please, just keep that between us.
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