Truck drivers and larger carriers are facing a tough business environment, which may get worse than it did during the Great Financial Crisis, according to a report.
Freight demand has deteriorated over the last year due to a sluggish economy, and per-mile rates for drivers have plunged since the pandemic-era boom in 2021, which brought a surge of goods onto the market.Per-mile rates are less than half of that from 2021, according to FreightWaves data cited by Bloomberg.
A combination of inflation, rising maintenance prices, a glut of consumer goods, and higher operating costs have all put pressure on the trucking industry.
Trucking Industry Signaling Early Signs of a Broader Downturn
The trucking sector is known as a bellwether for the broader economy since it covers nearly two-thirds of tonnage carried by U.S. freight transportation, the American Trucking Association said.
A major downturn in the volatile trucking industry could signal a recession that could be worse than that of 2008 to 2009 or even 2019.
The New York Fed’s Recession Probabilities model currently puts the odds of a downturn before April 2024 at about 68 percent.
The low barriers to employment in trucking make the sector extremely volatile, as thousands of small-scale operators usually ramp up capacity when carrier rates start to rise.
A surge in overall costs and a drop in demand in orders have painted a bleak economic picture, according to Bloomberg’s “Odd Lots” podcast interview with FreightWaves CEO Craig Fuller and editorial director Rachel Premack.
Investors are trying to see if the current downturn would have an effect on consumer demand, which may have a strong effect on the chance of a looming recession and the cyclical nature of the industry.Shelly Simpson, president of JB Hunt, a trucking firm, said in a recent earnings call that the current market is “reminding us of 2009.”
As operations became more expensive, trucking companies have been forced to pay more than usual to run their vehicles and find enough mechanics to maintain them.
Meanwhile, the Federal Reserve’s hawkish interest rate policy to reduce inflation is exacerbating the stress on the supply side.
You look at the cost of capital,” Fuller said. “One of the things to remember is that trucking is a capital-intensive industry,” despite having one of the lowest returns on capital of any industry.A lot of these trucking companies finance their working capital, and they finance their trucks. What we’ve seen is a pretty dramatic increase in cost.”
The American Trucking Associations’ seasonally adjusted for-hire truck tonnage index dropped 5.4 percent in March, the largest monthly drop since April 2020.
