An Uncertain Trucking Horizon—“The Risks of a Mild Recession Have Increased”

While the U.S has boasted some rather pleasing levels of growth and continued prosperity following the recession nearly a decade ago, we might be seeing an end to it, at least in some sectors, shippers and carriers in particular. According to the Cass Freight Shipments Index, May statistics dropped 6 percent, year over year, while the ATA For-Hire Truck Tonnage index shows only a suggestion of growth at 0.9 percent from May 2018, the smallest annualized gain since April 2017. 

Shippers not only paid less to move freight, but they also moved less product as well, indicating a slowing down of business. 

That however, is only the tip of the iceberg. The Cass Freight Expenditure index turned negative by one percent, beginning a descent after climbing a healthy 6.2 percent. This is a rather substantial switch which indicates that shippers not only paid less to move freight, but they also moved less product as well, indicating a slowing down of business. 

Stats are also slowing down for the US truckload linehaul rates, with rate increases of only 1.2 percent in May, year over year, whereas the Cass Intermodal Price Index was up 4.2 percent the year before. 

As the Cass Shipments Index has declined for the sixth straight month, author of the index report Donald Broughton, declared it a signal of economic contraction. “Whether it is a result of contagion or trade disputes, there is growing evidence from freight flows that the economy is beginning to contract,” he said in the report, issued Tuesday.

Contraction, as you might have guessed, is quite the opposite of expansion. It’s not even a matter of incrementally slow growth, but rather shrinking. A contraction is what has people nervous. Textbook definition of a recession is two consecutive quarters of economic contraction and we’re at six, presently. That has Broughton sounding the alarm, however, the contraction is not yet universal, nor is the Cass Shipment index going negative a guaranteed indicator of economic distress.  

The question is, does this sudden reversal in spending and drop in shipments mean simply a slow down in growth, an economic contraction, or is it mirroring a shift in freight demand brought on by the Trump Administrations tariffs?

The question is, does this sudden reversal in spending and drop in shipments mean simply a slow down in growth, an economic contraction, or is it mirroring a shift in freight demand brought on by the Trump Administrations tariffs? Or, is it a mix of all these factors? 

A Recession Could Hurt Some More than Others

When you don’t take risks, that means we are not going to grow at the same pace that we were.

Bob Costello, ATA’s chief economist and senior vice president of international trade policy and cross-border operations, spoke to the council here. “When I come to meetings like this, everyone is like, “What is going on? Are we headed for a recession?’ ” Costello said. “When people start asking those questions, you know what that tells me? You go back to your businesses, and you are not going to take risks. And when you don’t take risks, that means we are not going to grow at the same pace that we were.”

Costello sites President Trump’s trade war as a cause for much of the uncertainty in the industry which is one of the many unknowns that could hurt the U.S. economy, ending the period of expansion since the third quarter of 2009. 

To be fair, that is a considerable time for expansion to go uninterrupted, but Costello also is hesitant to call the current market status a possible recession in 2019 and 2020. 

“The risks of a mild recession have increased,” Costello told the audience of freight officials and executives at a recent NAFC conference. “It’s not my forecast. All I am saying is, the risks have increased.  The theme is slowing but growing.”

With the increase in pay to help keep experienced drivers and attract new ones combined with the lower spot rates for hauls, it could prove to be a deadly combination for smaller carriers.

Fleets stand to lose the most during the economic uncertainty, especially smaller carriers who are at the mercy of the spot markets which has been getting hit with rate drops over the past few months. With the increase in pay to help keep experienced drivers and attract new ones combined with the lower spot rates for hauls, it could prove to be a deadly combination for smaller carriers.

“Contract freight is doing better than the spot market,” Costello said. “The spot market has been hit hard … I think you are going to see more and more fleets going out of business.”

The situation could result in potential “carnage” with some fleets, as they seek bankruptcy protection or simply go out of business, he added.

A Muted Spring for Freight

Spring was undoubtedly a soft season for the freight industry this year, but we’re seeing the dam start to break, or at the very least crack. Truckload rates reported by DAT solutions out of Atlanta have risen by double digits in the last few weeks as more and more freight appears to be moving in land from U.S. West coast, always a good sign as it will mean that June statistics and rates were higher than May. 

This is very good news for owner-operators and independents that depend on the spot market more than their larger counterparts. However, that breathing room might not be long-lived if the current downward trend continues. 

“In the short term, Los Angeles, northern California, and Atlanta are much more robust in the last thirty days, both in load-to-truck ratios and, more recently, pricing,” says Mark Montague, an industry pricing analyst at DAT.

“While we are starting to see higher quantities of summer produce, USDA and DAT’s own internal data suggest it continues to be a sub-par year for produce shipments.  It could still turn around with a few weeks of favorable growing conditions, so this remains a wild card. This will also have a ripple effect across other segments of the supply chain,” Montague adds.  

A recession, while not a great thing, wouldn’t be totally devastating to contract carriers, but it might be damning for smaller companies.

What we’ve seen so far is that the future is decidedly unclear, much of it due to the current geopolitical standing and impending trade war as the global economy reshuffles its hand preparing for the next round. A recession, while not a great thing, wouldn’t be totally devastating to contract carriers, but it might be damning for smaller companies. As for shippers, now is the time to review your supply chains and develop your contingency plans for a multitude of events including the growing impact of e-commerce demand and rapid fulfillment expectations on freight flow and distribution locations. 

The industry is changing, and we will be seeing a radical shift in the topography of freight shipping, both the highs and the lows, not just in the United States but globally. BlueGrace is committed to helping our customers navigate through the constant changes the industry brings. No matter the situation, we are here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or fill out the form below to speak with a representative today!