The trucking industry is undergoing its best period of growth in years and should remain strong for the next 18 months before softening.
The industry is benefitting from low unemployment, booming housing starts and strong online sales growth, according to Bob Costello, the American Trucking Associations’ chief economist.
“Not since we’ve come out of the Great Recession [in 2010] have all of these [economic factors] come together to provide an environment where freight is this solid,” Costello said during a conference call with investors hosted by Stifel Financial Corp. on Tuesday.
This strong economic climate for trucking could continue for the next 18 months or more, depending on ongoing negotiations with Mexico and Canada over the North American Free Trade Agreement and other factors, Costello said.
“NAFTA trade is hugely important to trucking,” he said.
The vast majority of goods going across the Canadian and Mexican borders are moved by truck. NAFTA trade supports about $6.6 billion per year in revenue for the trucking industry and supports about 31,000 truck driver jobs annually.
Overall, the trucking industry moves more than 70 percent of the nation’s freight by volume and earns more than $676.2 billion in revenue annually, according to ATA estimates.
If the Trump administration doesn’t have a deal in place by early June, Costello said to “watch for the administration to potentially pull out of NAFTA.”
“The risks to the economy are self-imposed,” he said. “It would be around trade wars and tariffs.”
Another factor is whether carriers can find enough drivers to meet freight demand, Costello said.
The industry was short about 50,000 drivers in 2017, and that number could rise to 175,000 by 2026, Costello said.
“This is my warning shot to the industry, not just trucking companies, but also shippers,” he said.
There’s also a lot of churn in the business. The ATA estimates driver turnover at big carriers was 87 percent last year.
It’s a problem for the long-haul business and big freight shippers. The turnover rate at less-than-truckload carriers, companies that move smaller loads and parcels packages, was much lower — 9 percent in 2017, Costello said.
“There’s a simple reason for that — those drivers make more money and are home more often,” he said.
Costello also said the following:
- Freight volume continues to rise. After essentially seeing no growth in loads in 2016, the industry snapped back and finished strong in the fourth quarter of 2017 with total loads up 6 percent year– over– So far in 2018, the total number of loads is up 5.4 percent compared with the same period a year ago.
- The number of miles driven per load continues to decrease for full truckload carriers. The average miles driven per haul fell 34 percent last year to 524 miles, down from nearly 800 miles about 15 years ago.
- A changing supply chain is behind the decline, Costello said. Online and big box retailers have increased their number of distribution centers across the country, shortening distances for deliveries. The number of miles truckers are driving annually also has fallen and now stands at about 100,000, roughly 35,000 miles less than 15 years ago.
- Sales of trucks in the heaviest Class 8 weight segment continue to be strong as demand grows from both leasing companies and motor carriers. ACT Research estimates that manufacturers will receive orders for 305,000 Class 8 trucks this year, a 19 percent gain from 296,440 vehicles in 2017.
- Contract and spot freight rates continue to soar. The contract rate average revenue per mile rose 3.5 percent in 2017. Through the first two months of this year, contract freight rates have jumped 15 percent per mile. “We’ve never seen numbers like this,” Costello said.