The last few years before 2019 were great for trucking. In 2018 manufacturers and retailers stocked up on supply before trade war tariffs went into effect. Furthermore, the electronic logging device mandate went into effect, prompting shippers and carriers to squeeze out mileage before the regulations really took hold.
The economy was healthy, fueled in part by the steady growth of e-commerce. Bountiful yields in the oil business packed pipelines to full capacity, creating a flurry of trucking activity to carry crude and drilling equipment. Trucking companies hired more drivers and added trucks to their fleet to keep up with demand.
With this history as background, it comes as no surprise that one of the biggest transportation stories of 2019 has been the huge drop-off in volumes. Trucking typically accounts for as much as 70% of domestic shipping tonnage, especially in the sectors of construction, manufacturing and retail. But despite the seemingly stable nature of these industries trucking companies have seen a huge drop in volume, even during the usually busy holiday season.
With excess capacity, short-term shipping rates have decreased, putting companies that invested in new equipment in a crunch. Although the American Trucking Associations' tonnage index is at 117.4 (far beyond the 2008-2012 levels of 90 and below), ACT research has revealed that dozens of fleets have crossed into negative territory for the first time in three years.
Some regions have been harder hit than others, especially the Midwest. Areas such as the transportation hub of the Chicago, where a quarter of a million people in the region are employed in logistics and transportation, have felt the brunt of the cooldown. With average median salaries of $49,000, this reality has slammed the areas' economies.
And then the threat of tariffs hit. Warehouses were quickly stocked before the tariffs were enacted, driving spot market rates down from a June 2018 high of $2.32 per mile to a low of $1.79 in the summer of 2019. All of this has led to a 2019 that has been the least profitable year in trucking in the past half-decade.
Some pundits are forecasting a further bloodbath for the trucking industry. Already this year more than 600 carriers have reported losses and two major outfits, the latest one being Celadon, have suddenly disappeared. Eight other mid-size carriers declared bankruptcy and shut their doors for good.
Furthermore, trucking companies have ceased to continue to build up their fleets. Order cancellations for big rigs have reached their highest rate in the past two decades. Meanwhile, the used truck market has seen a 25% increase in price, making it harder for smaller companies to expand their fleet.
Additionally, companies that don't have a fuel surcharge may be facing uncovered fuel expenses in the range of $0.04 to $0.08 per mile, as new International Maritime Organization standards for 2020 drive up the price of fuel for ships, which may divert diesel from the over-the-road trucking market.
Yes, the year 2019 was ugly from multiple angles, but there is a light at the end of the tunnel.
Experts are pushing off the sentiments of doom and gloom by chalking up changes in the trucking industry to tariff-driven shake-ups that will eventually balance out. Suppliers cutting ties with China are restructuring the landscape as they find new ports and shippers.
Then of course, there are environmental factors to blame. For instance, a cold and wet year affected the amount and movement of produce and reduced seasonal spending. And bigger-picture economic factors cannot be forgotten either. Auto production is slowing along with the global economy. All these factors will eventually correct themselves.
Still others have suggested that 2019 has only appeared so horrendous because of how good the previous years were for the trucking industry. As sector indicators, quarterly per-share estimates for J.B. Hunt, Covenant and Knight-Swift have dropped between 9 and 40%.
There's always next year.