2018 was a booming year for the trucking industry’s spot market. A corporate tax cut unleashed a strong demand for all types of freight services, creating tighter capacity, higher volumes, and stronger pricing power throughout the trucking industry. The U.S. tariff that threatened a penalty of 25 percent on $200 billion dollars of Chinese products caused huge amounts of early shipments of goods to be moved in Q3 and Q4 of 2018. Earlier in 2018, trucking firms added to their fleets to handle the increased demand.
The trucking industry, or rather the flow of shipments facilitated by the trucking industry, is one of the leading indicators of the United States’ economic health. As such, the industry is a proverbial parakeet in the coal mine; it feels the effects of any economic turbulence before most of the industries and businesses it serves. So, why did the first half of 2019 tell a different story from the previous year?
Weaker European Economy
Several factors sparked major shifts within the trade world. A weaker European economy and Great Britain’s “Brexit” have created a plethora of trade uncertainties within the area and throughout all of their trading opportunities in the Eurozone.
Weather events affected food and crop availability in early 2019 throughout the United States. When crops fail, or harvests are delayed, they might not need to be transported at all or their transport occurs later than it normally would, which affects the normal rhythms of the supply chain. In effect, shipping volume decreases while trucks not being used at their normal rates become available and create excess capacity. Lower shipping volumes coupled with higher capacity means too many trucks for too few transports. That was, and is, a recipe for softer rates, which is exactly what came to fruition.
Tariffs, or the threat of their implementation, have been the broadsword that the United States has used to drive trade negotiations and agreements throughout industries and nations, especially with respect to China and Mexico. Regardless of your opinion regarding the tactic, tariffs and their related negotiations take time to resolve and close. In so doing, they introduce uncertainty into the business landscape due to the businesses affected by them not knowing the final outcome. This uncertainty persists until a negotiation closes and the affected businesses understand the terms of the resulting agreement.
The United States has placed tariffs on a variety of goods that businesses import from a variety of countries. In response, these countries have retaliated, placing tariffs on goods they import from the U.S.
If there is one thing businesses dislike, it is uncertainty. What happens during times of uncertainty? Businesses temporarily retrench until they can determine the eventual impacts – plans may never come to fruition or can be postponed; manufacturing slows down; orders are canceled; and shipments get canceled. All decisions reside in a “wait-and-see” mode and it takes large amounts of time for companies to return to a “business-as-usual” rhythm.
You may be asking, “Which industries have been affected?” An easier question to ask may be, “Which have not been affected?” Some of the industries caught in the crosshairs include the agricultural industry, the automotive industry, the telecommunications industry, the semiconductor industry, the energy industry, and the construction industry. All of these industries rely on big rigs to transport their goods.
Housing Starts Slump
In comparison to former years, housing starts declined by 4.7 percent as of May 2019. Fewer housing starts reduce demand for the various products used in housing construction, which in return lowers manufacturing output as well as the amount and types of product to be transported to their various destinations. This once again means lower shipping volume on the spot market, mostly for flatbeds, but this could affect the demand for reefers and vans, too.
June 2019 and Forward
May’s load count numbers continued in a downward fashion and disappointed those within the industry greatly. However, signs of a June rebound are now being discovered. An abundant capacity still exists within the spot market, but so does a relatively strong, growing capacity for volume.
Seasonal shipments come with the warmer weather during this time of year, and stored goods are moving towards the east from the west. This removes capacity from the spot market because the time it takes for a truck to make a round-trip is higher, which may nudge up rates.
Speaking of which, the average national DAT truckload June rates for vans, flatbeds, and reefers moved upward to $1.90, $2.30, and $2.25, respectively. These rates represent a roughly 6.1 percent rate increase for vans, a 0.9 percent rate increase for flatbeds, and an approximately 4.6 percent rate increase for reefers. A portion of a month does not necessarily indicate a steady trend, but it is an increase over the month of May across the board that many hope will continue for the rest of the year.
No one can say for sure, indeed, several market analysts see continued clouds for the industry. However, DAT market analysts see cause for optimism. They indicate a slow, steady year-over-year growth in spot freight volumes, with the only drag on rates being excess spot market capacity due to the fact that trucking demand did not grow as fast as capacity. Seasonal freight movement, as well as the resolution of tariffs, may help to consume existing excess capacity and help boost spot market rates.
Stay tuned for more updates on the freight industry and changes in spot market trends.