Contract freight market keeps wheels on US trucking

WASHINGTON — The “freight recession” is real, but “contained” within the US truckload spot market, American Trucking Associations (ATA) chief economist Bob Costello said Monday. The contractual trucking market “is okay,” Costello told the ATA Economic Summit.

“Spot market loads are contracting 50 percent year over year, and that’s where the freight recession resides,” Costello said, adding, “the contract market is still decent” in terms of volumes.

“We’re at high levels of freight,” he said, and although growth is lower than in 2018, “it’s still solid.”

Costello’s perspective on trucking challenges the gloomy narrative emerging in the wake of hundreds of small trucking bankruptcies and a handful of larger carrier failures. Most of those losses, he suggested, are among companies largely dependent on the truckload spot market.

“Those fleets that play in that sandbox have got to be hurting,” he said. “This is where we’ll see a shakeout.” About 640 trucking companies went out of business in the first half of 2019, compared with 175 in the same period of 2018, according to data from Broughton Capital LLC.

Last year was a low point for trucking bankruptcies, however, and the number of trucking companies keeps increasing. There were 21,474 more for-hire trucking companies on United States highways in June than in the same month of 2018, according to QualifiedCarriers.com.

Analyzing monthly carrier data from the Federal Motor Carrier Safety Administration (FMCSA), the risk management company found 16,763 of those carriers were companies with one to six trucks. The data showed a year-over-year gain of 168 carriers with 101 to 500 trucks.

The number of failed carriers reported by Broughton Capital would represent about 3 percent of the new companies that entered the for-hire trucking market in the 12 months ended in June. The pain caused by trucking bankruptcies may be acute, but it’s not widespread.

Retail sold on trucking

Costello credits contract business with keeping the for-hire truckload industry’s head above fast-moving water this year. Contract rates have turned slightly negative year over year, he said, but their slide is nothing like the steep pricing drop on the transactional spot market.

Additionally, contract freight volumes remain high, even if not as high as last year, he said. This is true for both truckload and less-than-truckload (LTL) freight.

Retail sales, both of consumer goods and food and drink, are keeping trucks rolling, as demand for industrial and construction-related freight remains soft in 2019, Costello said. “This is the bucket of freight that is doing well, and why contract rates are holding up,” he said.

Seasonally adjusted retail sales were up 4.1 percent in August and are expected to be above 4 percent for the full year, Mark Mathews, vice president of research development and industry analysis for the National Retail Federation (NRF), told trucking executives at the summit.

“We had a superstrong [peak] season last year and it’s always hard to replicate that growth, but the consumer is strong,” Mathews said, adding retail sales rose 4.6 percent in 2018. “To hit 4 percent this year, any number like that is strong growth coming off a strong year.”

Manufacturing, in contrast, is down 0.4 percent year over year through August, levels unseen since the 2016 industrial recession, according to the National Association of Manufacturers (NAM). NAM chief economist Chad Moutray blamed slowing global manufacturing.

High volumes, slower growth

Contract rates are slipping, pulled down by the collapse in spot market pricing, but they haven’t fallen the same distance, said Costello. “We’ve seen contract rates go negative [year over year] for the first time since 2016, but they’re not negative by very much,” he said.

The Cass Truckload Linehaul Index, which measures a combination of contract and spot rates, declined 2.6 percent year-over-year in August after two years of annualized increases.

The Cass Freight Shipment Index, a yardstick for US shipment volumes, has declined year over year for nine months, bolstering arguments that the US is in a freight recession. However, “I think the focus needs to be on the level of freight, not the growth rate,” Costello said.

Costello also sees a potential route out of the current bout of slow economic growth.

“None of us today were predicting a recession,” he said, referring to other economists who spoke at the ATA summit. “If we get the trade stuff figured out, you might see a return to above-trend growth,” as opposed to the “trend growth rate” the US fell back to this year, said Costello.

The potential impact of the next round of US tariffs was seen as the biggest economic threat. “If we can get out of the trade war, I think there’s an opportunity to accelerate growth,” Costello said. “When we get to the back end of this, I think it will be as good as 2018.”

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