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While it may be difficult to find the
bad news in predicted growth, the
growth in another area is contributing
to the problem. Sales of new
Class 8 trucks are growing at a rate
25.1% higher than last year, which
was a very good year for truck sales.
America’s capacity to haul freight is
increasing by about 10,000 trucks
per month. There are enough orders
already on the books to keep the
build going for another seven to eight
months.
The law of supply and demand
applies to trucking. For the past few
years, there haven’t been enough
trucks to haul all the freight made
available through the growing economy,
sending freight rates skyward
and providing record profits for
many carriers. Today, as more trucks
hit the road, the balance is shifting.
Spot rates are already stagnant and headed downward
in some regions, with longer-term contract rates soon to
follow. “If you are operating in the spot market, things
will be softer,” Vise stated. “Those that keep costs down
will be ok, while those that spent the extra earnings realized
during the rate spikes will have a more difficult
time.”
Contract rates are far less volatile. “We’re expecting
this year to be almost flat,” Vise said. “For the remainder
of this year, we’re expecting softer contract rates to offset
higher rates from earlier in the year.”
While freight rates are expected to decline gradually,
there are a few factors that could accelerate the process,
the proverbial monkey wrench in the economic system.
One factor that looms large is the prospect of tariffs, those
imposed by the Trump administration and even those that
are threatened.
“We’ve seen a sharp decline in imports in quarter one,
partly due to the threat of tariffs,” Vise said. “That pushes
the GDP (Gross Domestic Product) upward. But remember
that imports create business for the trucking industry,
too.”
Vise said threatened tariffs on goods from Mexico
would have had far greater impact on the U.S. market and
on transportation than tariff issues with China.
“The risk of upsetting the economic apple cart is much
greater with Mexico than with China,” he said. “Mexico is
the world’s second-largest exporter of goods, more than
twice the size of China.”
Still, carriers that haul a lot of imported freight from
West Coast ports will see a reduction in Chinese trade.
Some of that reduction will be picked up by other Asian
countries, such as Taiwan and South Korea.
“Asian trade, excluding China, is growing well,” Vise
said. “But what does happen is there will be winners and
losers.” He pointed out that imports from Europe are growing,
particularly from France and Italy. Overall, he said,
carriers hauling imports from ports west of the Mississippi
will see a reduction of import freight while carriers hauling
from eastern ports will see an increase.
Recent demonstrations in Hong Kong, if they have an
impact at all, will have a greater impact on financial and
service industries than on goods produced, which take up
a much smaller share of the market.
Fuel price fluctuations can have a devastating impact.
“We’re looking at fuel being moderately higher,” Vise said,
FTR Trucking Conditions Index
“but nothing drastic, unless the market is impacted by
something unexpected, like a refinery shutdown due to a
hurricane.”
Vise noted that May prices for crude oil remained subdued,
helping salve any volatility in the market.
Interest rates are another factor. When the cost of borrowing
rises, carriers pay more for investments in new
equipment, terminals and other capital.
“We don’t expect any sudden increases, but financing
could be impacted by the tariff situation.” Vise said.
While all of this may seem to be of more interest to
carrier ownership than to drivers, the conditions could
impact drivers, as well. Driver pay, for example, can be
influenced.
“We’re not seeing upward pressure on driver pay, so
that incentive to switch carriers might be curtailed,” Vise
said, adding that the implementation of the Federal Motor
Carriers Safety Administration’s new Drug and Alcohol
Clearinghouse, set to go into operation January 6, 2020,
could also have an impact on hiring.
As driver turnover decreases, carriers can be more selective
in their hiring, making it more difficult for drivers
with less-than-perfect records to qualify.
Those who are considering buying a truck and becoming
an owner-operator will want to carefully consider the
conditions before jumping. Vise pointed out two factors
that could impact the decision: “Financing is not great
right now, and spot rates are down, impacting owner-operators
who depend on brokered freight.”
He also pointed to the trend of carriers moving away
from the leased operator model and instead dealing with
owner-operators through a brokerage model.
“There may be more opportunity for a new trucking
business owner in that area,” Vise said, citing ongoing litigation
in which courts are ruling that lease operators are
employees as one of the potential reasons for the shift.
While change is the one constant in the trucking industry,
Vise notes that predictions of recession have eased
somewhat.
“Carriers can consider themselves lucky for this year,”
he said. “There were some fears it would be much worse.
We’re looking at some very small negatives, following a
year of huge positives. So far, the lows aren’t as low as the
highs were high. It’s still a good environment for trucking.”
Carriers may not repeat the record profits from last
year, but there are still profits to be made.
TCA 2019 www.Truckload.org | Truckload Authority 19