Truckers face another bloodbath

All his life, Roy Walters has managed bars and restaurants: upscale Italian restaurants, dive bars and even strip clubs. Then, in March 2020, the pandemic ended his livelihood.

A truck driver pal suggested that the newly unemployed Walters join him in the industry. So Walters rode an 18-wheeler around the country, visiting places like Seattle and the Grand Canyon, before deciding to own his own fleet. Today, the Clearwater, Fla. resident operates seven trucks.

Walters stays at home most of the time, but sometimes he gets behind the wheel. “For me, it’s almost like a vacation, except I get paid,” he says.

The trucking business has been booming since he got started. The pandemic has sparked historic demand for durable goods, the kind of things Walters and its employees haul in their dry vans. But a whirlwind of inflation, rising diesel prices and overcapacity in the trucking market are causing freight rates to drop suddenly. “It was a struggle,” Walters said. “That’s for sure.”

The indicators are worrying

Freight demand has undeniably slowed. And, at FreightWaves, we think a trucking recession could be next.

On Wednesday, the highly regarded Cass Transportation Index Report said the freight market was slowing, although index experts said it was too early to declare a recession. Banks like Cowen and Bank of America recently downgraded trucking stocks in their own notes to investors.

Dry van rates have fallen 37% since Dec. 31, according to an April 8 transportation note from Bank of America analyst Ken Hoexter. These rates are in the spot market – where the charges are picked up on demand, rather than through a contract. The spot market is only a fraction of the trucking world, but spot numbers tell where contract rates will go.

Another slowdown indicator is the decline in contract charges rejected by carriers. Contrary to the idea of, uh, a contract, truckers can reject loads that they have previously agreed to transport. Usually they reject a contract load if they can get a better job in the spot market. Analysts follow the outbound tender rejection index to see if the trucking market is hot or not.

Compared to last year, the market is resolutely do not. Only 11% of shipments are currently rejected, compared to 25% at the same time last year.

(SONAR FreightWaves)

Until the end of 2020 and throughout 2021, trucking was “white-hot,” said Amit Mehrotra, managing director of transportation and shipping research at Deutsche Bank. As FTR Transportation Intelligence’s Avery Vise told The Wall Street Journal on Wednesday, trucking companies could expect to simply “print money” in this market.

Now truckers who have entered this industry in recent months are scrambling to stay profitable – and some have already quit driving.

What happened?

Random shit sweetening request amid driving ability influx

If your high school economics background was as prestigious as mine, you know that high supply or low demand leads to lower prices. Currently, there is both an increase in supply (truckers) and a decrease in demand (loads to be moved by truckers).

The supply of truckers is on the rise. Thousands of new fleets are registered each month in the United States, and this has reached a fever pitch in recent months. In February alone, a record 20,166 trucking companies entered the market. (Keep in mind that a typical trucking business is very small; 89% have one to five trucks.)

The truck driver labor market was unusually tight through the end of 2020 and throughout 2021, but an ACT Research survey of trucking companies shows driver availability has improved. Mehrotra told me that the workers had finally exhausted the savings they had accumulated during the pandemic and were returning to work.

An orange and green bar graph indicating improvement at the top and deterioration at the bottom, with an index at the top right,
(Credit: ACT Research)

Meanwhile, request for truckers has softened. Consumers are reducing their spending, especially when it comes to buying more and more things. Core retail sales fell 1.2% in February, the most recent figure available from federal authorities. These sales will likely continue to decline. In response to historic inflation, 84% of Americans polled by Bloomberg News said they would cut spending. Some have already been forced to cut spending, according to a CNBC poll.

And those who are still spending are increasingly going to restaurants and concerts instead of, say, buying a lot of stuff from Amazon. The latter requires many more truckers than the former.

(Credit: Bank of America Global Research)

There are many truckers who entered the industry when our only hobby was online shopping. But, amid inflationary pressures and a largely reopened society, consumers are buying less of these durable goods. This is a Venn diagram overlap that could result in the immediate expulsion of many new fleets from the market.

I let Walters explain:

“The tariffs being so high, everyone and their uncle bought a truck. I would have liked it to have a little more stability for drivers and small carriers. With more trucks on the market, shippers and brokers can kind of dictate the price because someone is going to pick up the freight.

The return of the bloodbath?

This trucking normalization should come as no surprise, Mehrotra said. “It’s entirely reasonable to assume that the white-hot demand environment we’ve been experiencing for the past two years will moderate,” he told me.

Yet plummeting freight rates are stressing the very many new truck drivers who have started their own fleets or entered the industry in the past couple of years. Their experience of running a trucking business was in an exceptionally favorable market. Some may not have experience running a business. Thus, the fall in tariffs, associated with the surge in diesel, is a slap in the face.

This is all reminiscent of the trucking bloodbath of 2019 (which I wrote about extensively during my old gig at Business Insider). In 2018, trucking was booming. Drivers were receiving record increases amid a capacity shortage that year. Many have joined the industry. Unfortunately, the demand for trucking services has dropped at the same time. That’s a very short explanation of why 1,100 trucking companies closed in one year.

Despite this history, some pilots are not worried. Travis Ludi, who is based out of Oklahoma City, has been a truck driver for 10 years. He opened his own trucking authority just a month and a half ago. He said his field of trucking – hauling grain for animal feed – is much more stable than the dry van world. (However, there is a downside to this recession-proof industry. Ludi also transports “leftover leftovers” from killing factories to pet food factories, which, to me he confirmed, doesn’t smell good!)

“A lot of businesses or other owner-operators are getting in over their heads as rates go up,” Ludi said. “They buy new trucks at higher prices because of inflation. Every time the rates go back down to a normal level, they have to go out of business. »

Others feel more cautious. David Guzman in San Antonio has already parked some of his trucks.

Guzman bought three “very cheap” trucks from a liquidation company in early 2020. Those trucks turned out to have previously belonged to Celadon, a company that generated $1 billion in revenue before filing for bankruptcy in the US. middle of the trucking bloodbath of 2019.

When diesel started to skyrocket this year, Guzman crunched the numbers and realized he wouldn’t be able to run these trucks. He has a separate fleet that handles Amazon loads and has paid for his equipment, which helps him make ends meet. “I can’t imagine what people who have payouts on their gear are going through right now,” he said. “Given the rates, you have to run twice as hard to make ends meet. I can’t help but have feelings for my fellow truckers.

In the meantime, it’s another bloodbath these Celadon trucks could be waiting for.

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