The Good, the Bad, and the Truth

“The freight recession is over.” “Trucking bloodbath continues.” “Danger signals that were flashing… no longer signaling imminent danger.” “2019 has been the worst year for trucking operators.” If those preceding August headlines are to be believed, the recession is both over and worsening. If we put all vernacular aside and remain objective, collectively, we should be asking ourselves and our colleagues the same two questions: are things currently good or bad, and are they getting better or worse?

Shippers aside, things are bad. From large, publicly traded companies to three truck fleets, revenues are down across the board. Freight brokerages have faced similar peril, despite still healthy spreads between contract and spot prices, as whatever spot business exists is done at prices somewhat counterintuitive to profit, leaving only contract business to pay the bills. That is our current backdrop and that’s generally accepted by all. The question of conditions worsening or improving, however, could not be more dividing.

Ask some and they’ll point to increasing load counts. Ask others and they’ll cite minuscule spot market business. Both statements are true as well as the one industry characteristic all would agree on; rates are still gravely low. Everything remains the same except for everything that has changed. Pardon the dichotomous statement, but volumes across the board are strongly moving higher in an unexpected fashion yet rates haven’t moved a bit. In fact, taken as a whole, rates for the month of August averaged roughly $.03 less than July, despite monthly average volume higher by 3% YoY and 6% MoM. The more things change, the more they stay the same. Price will always be determined by the level of supply and the level of demand, but the story of 2019 has been the dominance of the available supply. We have more trucks than we know what to do with them and until that changes, price will not.

Where does that leave us for September? Right back where we started. Low rates, low margins, and low chances for change. The pickup in volume has given a glimmer of hope but without a drastic increase from already high levels, we will not meet nor exceed the amount of supply in the marketplace. A robust holiday season is expected, and we can debate the merit of another tariff pull-forward, but west coast warehousing is already at full capacity and rates out west indicate ample capacity exists. True, preferred ports of import have shifted somewhat in response to the tariffs, increasing the volume at east coast ports as the origin of goods is no longer China and possibly pulling capacity to that side of the country. This alone is not enough, though, just a short-term correction in supply-chain patterns and price.

Without an alteration to the amount of available capacity in the marketplace, we simply do not have the fuel to maintain anything beyond a spark. Yes, Carrier failures are escalating but, believe it or not, so is the amount of new entries into the marketplace. A company may go bankrupt or shutter its doors, but those trucks do not disappear they just start moving loads for someone else. The sharp drop in rates from a year ago has been enough to remove the least efficient and less capitalized companies as 2018 rates per mile lured thousands of new entrants and additions into the market, but 2019 prices aren’t old enough to flush them out, if they are to flush them out at all.

In June 2008, crude oil prices hit an all-time high and the industry reacted with a massive increase in oil rig counts and investments in new technologies. In June 2018, freight prices hit an all-time high…