Talk of a trucking industry recession is growing as shipping rates and new equipment orders fall, but most industry analysts push out the timing of a downturn.
The trucking industry operates in cycles of dizzying highs and steep drop-offs. Truck and trailer orders both set records in 2018 as the U.S. economy grew faster than in recent years.
With a 12-month backlog, equipment production is brisk. Manufacturers built 4,500 more new trucks in December than planned.
But concerns about the impacts of tariffs on Chinese imports, lower oil prices and a global economic slowdown threaten order cancellations.
“You really want to start watching the cancellations in June when fleets are looking at true requirements for the second half of 2019,” said Don Ake, vice president of commercial vehicles at FTR Transportation Intelligence.
An economic recession is defined as two consecutive quarters of lower gross domestic product. Few economists see that happening before 2020.
But a sector recession, in which one or more industries slump, is possible in trucking, said Kenny Vieth, president of ACT Research.
“What we saw in 2015 is a good example,” he said. “The overall economy continued to grow. But starting in the second quarter, manufacturing contracted and freight volumes moved sideways for a year.”
If oil prices, currently around $50 a barrel, fall into the $40s, a pullback in manufacturing of oil-extracting equipment could reduce the number of trucks needed in the oil patches. That would push them back to the general freight market, Vieth said.
“We have heard whispers, but have not seen evidence yet a truck recession is brewing,” said Steve Sashihara, chief executive of Princeton Consultants.
Freight Demand Moderating
Freight orders are predicted to grow 2 percent to 3 percent this year, about half the 5 percent growth in 2018. There are now more trucks available than freight to haul, according to DAT Solutions, which provides real-time reports on spot market and contract rates based on $60 billion in freight billings.
“The surge in capacity and less urgency on the part of shippers knocked down national average rates for dry van, refrigerated and flatbed freight” for the week ending Jan. 12, DAT said in its Trendlines newsletter.
Spot load prices have fallen below contract rates after double-digit increases in 2018, according to an unnamed broker quoted in a recent Morgan Stanley investor note.
“There is a growing feeling that demand and pricing is loosening for some of the smaller shippers, resulting in lower spot prices and fewer calls to brokers,” Sashihara said.
Caution Over Panic
Trucking analysts are cautious but not panicking about the U.S. economy.
“While we expect a slowing-to-trend growth, we do not see a recession in the U.S. in the next 18 months,” Kristine Kubacki, Mizuho Industrials analyst, said in a recent research note.
The American Trucking Associations agrees.
“I’m still expecting growth, both economic and trucking, to slow in 2019, but at this point I think a recession is a 2020 or 2021 event,” Bob Costello, ATA chief economist, told Trucks.com. “Tariffs and trade wars are my biggest concerns.”
Trucking Stocks Hammered
Some trucking companies’ stock prices fell as much as 40 percent in 2018. The selloff began before any hints of a pullback.
“These fears have been percolating for the last couple quarters,” said Paul Penney, managing director at Northland Capital Markets. “I’m not blind to some of the escalating risks, but the stock prices all overcorrected.”
The Dow Jones U.S. Trucking Index fell 10.7 percent in 2018.