The trucking industry is facing the challenges of a freight cycle downturn, but there’s a glimmer of hope. Positive destocking trends are emerging, working to restore a sense of balance amidst low demand.
“I think the best way to put it is we have not found bottom yet,” said Andy Dyer, president of transportation management at AFS Logistics. “I think the rate of price erosion and the rate of demand decrease have slowed. So, we’re not at the top of the cliff anymore. But we still haven’t found bottom.”
Dyer observed that the decline in performance began in the middle of the second quarter. He highlighted that spot rates showed a slight improvement around that period. Additionally, he mentioned that destocking and consumer demand are currently showing positive trends for transportation providers. However, he emphasized that the increase in consumer spending has primarily been focused on the service industry.
“The pandemic turned all that upside down and everything went heavily toward goods and things because there were no services to go buy,” Dyer said. “We didn’t go anywhere. But now people are really starting to spend their money on services. And I think that is most apparent if you just look at what’s happening in airline and rental car and hotel industries.”
According to Dyer, the produce season and other anticipated patterns have been disappointingly weak. He predicts that the industry will not see significant improvements until there is an increase in demand, and until then, there may be a decline in prices. Additionally, Dyer anticipates that there may be an increase in fleet closures in the industry in the near future.
“I don’t think demand is going to get materially better,” said TD Cowen analyst Jason Seidl. “But remember, I think we’re already in a freight recession and every month we’re seeing more and more carriers come out of the marketplace. One of the things we’ve seen recently is what I would call normal seasonality.”
In a recent report, ACT Research highlighted that the for-hire trucking market is undergoing a significant rebalancing as we approach a crucial turning point in the freight cycle. The report revealed positive progress in various key areas during the month of May.
Freight volumes, rates, and the crucial supply-demand balance all experienced noteworthy improvements. This positive trend is further corroborated by the significant jump in ACT Research’s trucking volume index, soaring to an impressive 49.4 points from 37.7 in the previous month. Notably, this signifies a slowdown in destocking activities. These encouraging findings reinforce the growing prospects and stability of the trucking market.
“While demand remains soft, less destocking may be starting to add to freight available to haul,” said Tim Denoyer, vice president and senior analyst at ACT. “Although volumes remain in a slight contraction, this large improvement in our fleet survey suggests we’re in the later stages of the freight downturn.”
Seidl believes that the worst point of the downward economic cycle was likely in the second quarter. He highlights the return to seasonal patterns and increased port activity as encouraging signs. However, he acknowledges that the rest of the year may not be significantly strong, despite some gradual improvement each quarter. Seidl also observes that destocking efforts are gradually stabilizing, although at a slow pace.
“I’m not so sure they’re totally through them,” Seidl said. “But it sounds like we’re moving in the right direction. One or two might be saying they’re close to normalization and now we just need restocking again, or at least stocking to normal levels. So, it’s kind of relying on the consumer going forward. But I think that early thing that sort of triggered the pressure in the truckload marketplace late last year, that was the result of just the destocking that was taking place.”
The CEO of Floship, Josh Tsui, has observed that the pandemic has had a profound effect on the trucking industry, which can be divided into three distinct phases: disruption, recovery, and transformation. The transformation phase is characterized by major shifts in consumer behavior, technology, and supply chain operations.
“I think it’s quite clear that trucking-wise, we’re definitely in the transformation phase right now and it’s still ongoing,” Tsui said. “It’s not just the trucking industry as well, or the freight side, because it’s all parts of the supply chain. But even after a year, pretty much when the pandemic ended, we’re still trying to adjust to changes in consumer behavior.”
Tsui asserts that the trucking industry has successfully moved past the impacts of the pandemic approximately a year ago. Initially, the industry faced challenges in its recovery, but in the past six months, all companies in the supply chain have been diligently striving to understand and adapt to the evolving circumstances. Tsui believes they are now gaining a clearer understanding of the new way of operating.
“The macroeconomic changes have started to settle down,” Tsui said. “I think one of the biggest questions for half a year was when is the recession hitting and it almost feels like we’re just going to skirt past it and just miss a true recession. Even if we do dip into it, we’ll probably be out of it pretty soon. So, I think we’re starting to get a feel for what that new normal is looking like and we just need to really figure out and adapt our strategies.”
Source: Transport Topics
