Truck manufacturers are laying off workers, carriers are cancelling orders for new vehicles, and shipping rates and volumes are slumping. Put it all together and you get a challenging environment for the American trucking industry.
A litany of forces dragged business down this year: sinking demand, excess stock, port bottlenecks, a capacity overload, a worsening driver shortage, tightening regulations and more.
“General economic activity has been fairly slow the first half of the year — still slightly positive, but weak,” said John Blodgett, vice president of sales and marketing for research and consulting firm MacKay & Co. “There are issues — such as overflows in inventory — and working that out is causing downside for freight in the market.”
Come 2017, the outlook improves. Consumer spending and manufacturing are expected to pick up. Carriers and retailers will likely have sloughed off their extra weight, placing supply and demand closer in sync, according to analysts.
“In the short term, it’s not gangbusters,” Blodgett said. “But by the midpoint of next year, all indications are that we should have a positive economy.”
Until then, though, the appetite for freight is “showing no signs of breaking out of the more than yearlong funk that has made life challenging for truckers,” wrote analysts for Stifel Transportation & Logistics Research Group in an investor report this month.
After the recession, the trucking industry recovered steadily as disposable income, factory production and cross-border commerce rose. But since the end of last year, demand has been feeble.
Shipment volumes slumped in August for the 18th straight month, and the number of truckloads shrank four out of the prior six months, according to the Cass Freight Index. Demand continued declining last month, falling below the five-year average during nearly two-thirds of the year to date, according to a separate measure from Truckstop.com.
The American Trucking Associations produces a seasonally adjusted index of for-hire truck tonnage, which swung from an all-time high in February to a 2.1 percent slide in July to a 5.7 percent uptick in August. The flip-flopping “underscores the difficulty in determining any real or clear trend in truck tonnage,” said Bob Costello, the trade group’s chief economist.
“Volatility continues to reign,” he said. “What is clear to me is that normal seasonal patterns are not holding in 2016.”
Economic conditions have been less than ideal. Gross domestic product growth is barely breaching 1 percent, compared with its 2 percent post-recession rate, which itself was slower than more pronounced recoveries previously.
The retail sector is steadily growing but not robustly. The industrial sector has swung unpredictably. Crude oil prices crumpled a year and a half ago, sinking below $30 a barrel in February and pummeling industrial production and trucking volumes.
Compounding the problem: too much inventory, caused in part by a hangover from labor strife at West Coast ports in 2014 and 2015. But even now, retailers and wholesalers are still trudging through the overflow of product because shoppers, while active, haven’t been quite as eager as anticipated.
So retailers haven’t called on manufacturers — which represent 62.1 percent of the trucking industry’s revenue — to replenish supply. Freight haulers have had less product to deliver.
“Instead of following the playbook, most U.S. consumers have been choosing to pay down debt and increase their savings rate,” Cass analysts wrote in their most recent report. “Simply put, the consumer has not yet picked up where the industrial economy left off.”
This year, U.S. trucking revenue has fallen 0.2 percent year over year, according to research company IBISWorld. But come 2017, freight demand may see a comeback.
IBISWorld forecasts a 2.4 percent surge in U.S. trucking sales to $186.6 billion next year, followed by annualized 2.1 percent growth to $202 billion in 2021. Truckers’ share of domestic freight tonnage will perk up to nearly 71 percent by 2024 from 69 percent currently.
American manufacturing is expected to improve, helped along by factory automation and a burgeoning “Made in USA” movement, analysts said. A 10.6-percent year-over-year surge in new industrial orders last month implies “a potential rebound in freight in the near term,” said J.P. Morgan analyst Ann Duignan.
Wholesale trade looks promising after a summer that saw higher freight volumes passing through ports in Los Angeles, Long Beach, Calif.; Savannah, Ga.; and Charleston, S.C.
And retailers — especially those investing in e-commerce sales— are increasingly embracing the just-in-time philosophy of inventory management, which could give freight demand another boost. Companies scale back storage costs by ordering materials as needed, which results in more frequent calls to trucking delivery services.
If demand does improve, the hope is that pricing follows suit. For now, truckers are accepting ever-lower rates as they try to match paltry hauls with excess capacity.
Cass’ Truckload Linehaul Index, which measures per-mile pricing, tumbled 2.8 percent year over year in August — a surprisingly large decline among six straight months of drops.
Fleet downsizing “ultimately will help bring supply and demand into balance,” said Stifel analyst John Larkin. So too will “capacity-sapping regulations” being rolled out over the next few years to govern work-hour compliance and emissions standards.
Carriers are still calibrating the right balance of equipment. Class 8 truck sales hit their highest seasonally adjusted level in six months in August, then plunged 27 percent year over year to their worst September in seven years, according to data from ACT Research and research firm FTR Transportation Intelligence. Both Daimler Trucks and Volvo have cut production and laid off workers this year at their U.S. factories.
Many trucking companies are nervous that demand could further shrink amid increasing competition from the rail industry and from retailers launching in-house delivery fleets.
But for the most part, the trucking industry is “much more bullish on 2017 and beyond” as it anticipates a bump in business driven by a weaker U.S. dollar, higher oil prices and post-election stability, Stifel found. Truckers will likely see a surge of interest during the fourth quarter because of holiday sales driven by e-commerce.
“All things aren't rosy in the industry, but you have to believe you can move yourself forward and can't be scared of challenges,” said Richard Stocking, co-chief executive of Phoenix-based carrier Swift Transportation. “I think we'll have a fairly good peak season between now and the end of the year, and I'm hopeful it will build in 2017 and we'll be able to continue to win and gain market share if the economy gets better.”
Editor’s note: Trucks.com contributing writer Tony Dreibus contributed to this report.