After a year-long recession, the U.S. trucking industry appears to be on the cusp of recovery, although the precise timing remains elusive. Industry experts are now more cautiously optimistic, having previously predicted recoveries that never came to fruition. The hesitation to call the end of the downturn is gradually diminishing as positive signs emerge, though caution is still advised.
Bob Costello, the chief economist for the American Trucking Associations, noted, “We’re no longer going to be deteriorating anymore. There’s a chance we are at the beginning stages of that cycle changing.”
The extensive downturn followed an unprecedented boom period influenced by the pandemic. The surge in consumer demand for goods during lockdowns drove significant freight volumes and elevated rates. This spike tested the limits of ports, rail systems, and trucking fleets, almost collapsing the entire supply chain and prompting many new trucking companies to enter the market.
However, the decline was swift and stark. As restrictions lifted, consumer expenditure shifted towards services such as dining and entertainment, reducing the demand for transported goods. This left retailers with excess inventory and trucking firms struggling with diminishing profits.
Renewed optimism is chiefly fueled by increased port activities. Despite high interest rates and persistent inflation, consumer spending remains strong, including both goods and entertainment. Cross-border trade stays robust as Mexico attracts nearshoring investments. Additionally, reduced inventory levels might soon need replenishment.
In April, U.S. ports processed the equivalent of 2.02 million 20-foot containers, up 13% from a year earlier. The National Retail Federation indicated that May’s port volume likely increased by around 8% to 2.09 million containers, the highest since August 2022. Although last year’s port volume declined by 12.8%, the recent surge in demand is now extending to the for-hire trucking market. May’s tonnage index showed a 1.5% year-over-year increase—the first such rise in 15 months. However, Costello urges caution, stating that one month doesn’t establish a trend.
Other challenges persist. Housing starts have dropped, impacted by a rise in the 30-year fixed mortgage rate to 7.25% from less than 3% in 2021. Manufacturing has been in contraction since late 2022, except for a brief improvement in March, according to the Institute for Supply Management.
Trucking capacity remains high, as many companies that joined the market during the boom are still operational. Government stimulus for small businesses and profits from the pandemic have kept many afloat despite current losses. The average carrier’s cost per mile is approximately $1.75, excluding fuel, while spot freight rates are around $1.55 per mile, according to Jared Weisfeld, chief strategy officer at the freight brokerage RXO Inc.
Approximately 30,000 trucking companies have exited the industry since the downturn began. While this number appears substantial, it represents a minor portion of the 350,000 trucking firms with operating authority, most of which run fewer than ten trucks, according to the Federal Motor Carrier Safety Administration.
“We’ve continued to see carrier exits,” said Derek Leathers, CEO of Werner Enterprises Inc. “That has led to a situation where we’re closer to the end than the beginning.” Werner plans to downsize its fleet by up to 6% this year.
Although there have been false starts before, the recent uptick in freight demand and decrease in trucking supply hint at a potential inflection point for the industry’s recovery. While timing remains uncertain, confidence in a forthcoming rebound is on the rise.
Source: Bloomberg
