The Struggles of the Trucking Industry in 2019
2019 was a challenging year for trucking companies, with the industry overall failing to turn a profit. This downturn was primarily due to excess capacity introduced to the market in 2017 and 2018, followed by a significant slowdown in freight demand in 2019.
Contract and Spot Rate Pressures
Declining spot rates and pressure from shippers to utilize cheaper carriers capped contract rates in 2019, leading to spot rates hovering near their lowest point. Additionally, carrier costs surged by double digits across most categories when compared to the previous freight recession in 2016, with notable increases in driver wages, equipment, and insurance costs over the last two years.
Struggles with Driver Recruitment
Several asset-based carriers reported driver wage increases of up to 30%, yet they continued to face difficulties in recruiting and retaining drivers. Experts suggest that a robust social media strategy could assist carriers in overcoming these challenges.
Industry Outlook and Market Cycles
From an outsider’s perspective, the trucking industry may seem brutal and unforgiving, but insiders like Amit Mehrotra from Deutsche Bank highlight its cyclical nature, noting its significant fluctuations between booms and busts. Earlier in the year, many large truck executives expressed optimism for 2019, but most fell short of their projections. Companies like Knight-Swift even anticipated missing quarterly earnings and described the outlook for 2020 as uncertain.
Impact of Bad News on Financial Institutions
Widespread reports of bankruptcies and economic strain within the industry have made the public and banks acutely aware of the trucking sector’s struggles. Truck manufacturers have laid off employees, citing difficult market conditions due to order cancellations. This has resulted in cautious truck production and a decrease in favorable financing terms from dealers and lenders.
Challenges with Insurance and Compliance
Insurance providers are also expected to play a critical role in capacity reduction within the industry. With increasing jury awards and limited insurance carriers willing to underwrite trucking companies, carriers can anticipate significant hikes in policy rates from 2020 onwards. The introduction of the Drug and Alcohol Clearing House on January 6 will further complicate hiring for carriers, as drivers’ violation histories will be accessible publicly, making it difficult for those with issues to find work.
Looking Ahead to 2020
The implementation of strict insurance policies will likely purge the industry of operators with problematic safety records. This tightening of capacity will eventually lead to increased demand in the spot market as shippers seek available capacity. However, financial institutions, wary after the experiences of 2019, might be hesitant to extend financing. This cautious approach is expected to slow the rapid re-emergence of capacity in the industry.
