Frightened Freight

I am aware it is that time of the year when recent articles and headlines come with words ranging from scary and spooky to shocking and startling. Specific to the industry, we read phrases like, “Trucking Bloodbath” and “Halloween Surprise”, and the all-too-common “Trick or Treat” woven into some type of corporate earnings blurb. I shall spare you the hyperbole but with the following warning: the words to follow are extremely unsettling.

              3rd Quarter earnings have been a tad frightful indeed. USA Truck, Schneider, US Xpress, ArcBest, JB Hunt, YRC, CH Robinson, Covenant, and Knight-Swift were among the list of big-name logistics companies reporting weak earnings. If that wasn’t bad enough, many firms went as far as to say their view of the future was rather gloomy as well. Readers of this newsletter know we try to present an unbiased view of conditions but as evidenced by our last two monthly reports and 4th quarter update, we must agree with the assertion that not only are conditions weak, they’re likely to remain weak.

              Volumes are moderating, warehouses are ballooning, and the available truck count just keeps getting larger. Yes, YoY volume is up but so is capacity, and available truck capacity will always be the most dominant factor in price. Without a disruption in the supply chain (mild weather) and without an impetus to move goods quicker (we have abundant inventories), Shippers can relax and allow capacity to find its way to where it needs to be. In fact, we ask the reader to acclimate yourself to this low rate environment because it isn’t going anywhere, anytime soon.

              Pre-ELD days lacked the conformity and standardization needed to draw any legitimate comparisons or conclusions on market data and price. Post-ELD days created an artificial bubble in price as the market rebalanced supply and demand on an entirely different playing field. The rules were quite literally changed mid-game. Though surprising in its brief duration of cycles, the freight market did what efficient markets are supposed to do. The market rallied far enough in price to illicit production of more supply, drastically more supply, and conditions have since moderated but excess capacity persists. While the market continues to look for a shrinking of the capacity pool, this has not materialized. Somebody, somewhere disagrees with you about what a fair price is for their truck(s). Maybe they’re more efficient, maybe they’re better organized, or maybe they’re just willing to work for less. The reason matters not, only the result.

              This presents a situation where the current transformative landscape of freight favors the modernizing, optimizing, and automating companies as lower overhead costs allow for continued profitability in spite of thinner margins. Taking it a step further, significant investment capital exists inside of the industry and appears hell-bent on revenue growth despite the costs.

              Stagnating demand by way of loads, increasing supply in the form of capacity, decreasing margins for all, and an ever-growing list of competitors in the game. Mix in a sprinkle of economic recession and we get a witches’ brew of missed earnings, corporate failures, and shrinking payrolls. The treats inside your business are disappearing, you better have a few tricks up your sleeve.