January 2020

Trucking industry looks forward to a new, and hopefully better year

In the last half of 2019 the US trucking industry was facing down tremendous economic uncertainty. Certainly a year the industry would rather forget, 2019 was capped by both a spectacular, top-ten truckload fleet failure (Celadon) and the hard ELD deadline. All in the rear-view mirror now as they say, but industry’s watchers and analysts are expecting smoother going and few more downhills by the start of the second quarter 2020.

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Strengthening seen ahead

Analysts at Argus media point out that seasonally-adjusted for-hire trucking fell in November to an index of 113.5, down by 7.2 percent from the yearly high set in July amid reports of lower demand during the fall freight season. Citing the American Trucking Association (ATA) index, Argus says the July increase was reflected in higher US diesel demand, that data point courtesy of the Energy Information Administration (EIA). In August, implied demand for distillate fuel oil, which includes ultra-low sulfur diesel (ULSD) reached 123.3 million barrels.

Argus finds that despite economic headwinds, trucking is up by 3.3 percent year-to-date compared with the same period last year. Oh and what a year it was.

Not the mojo we’re looking for

For many, 2019 was a very dangerous year for trucking; according to transportation industry data firm Broughton Capital, in the first three quarters of 2019, nearly 800 carriers went out of business, more than double the count of trucking failures in 2018.

As reported by CBS, a number of factors are behind this spate of failures. Notably: significant declines in the spot market resulting from the industry’s overcapacity situation; escalating insurance costs, uncertainty of fair trade relations with China.

Cassandra Gaines, a transportation attorney and head of Gaines Law Group, told CBS MoneyWatch it has been a "tough year" for the industry: "This isn't the first time this year we've seen a trucking company fail and drivers abandoned. That's been happening a lot in 2019." She noted that the Celadon failure is not exactly transparent, noting it's hard to tell how much its bankruptcy had to do with fraud and how much it had to do with the market.

Big players are hitting the skids, noted Donald Broughton, founder of the analytics firm. Broughton offered CBS the lowlights: In 2018, noted Broughton, 310 trucking companies with an average fleet of nine trucks failed, pulling 2,800 trucks off the road. Of the 795 companies pulling the plug in the first three quarters of 2019, those fleets averaged 30 trucks, with nearly 24,000 trucks being parked, Broughton said.

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Things to pay attention to this year

Brian Aoaeh, who writes about the reinvention of global supply chains observes the news we pay attention to every day can be a harbinger of how events will unfold in the near future. To illustrate his point, Aoaeh offered readers of FreightWaves three news items that he says - as we enter 2020 and the beginning of a new decade - are indicators of phenomena worth watching in the trucking industry between now and 2023.

From the perspective of an early-stage technology venture capitalist. The following things got his attention in 2019:

1. Celadon’s Chapter 11 bankruptcy filing

News about Celadon’s Chapter 11 Filing on December 8, notes Aoaeh, has consumed the trucking industry. As reported in FreightWaves and most media, Celadon’s bankruptcy is significant because it’s the largest for a truckload carrier and along with its 800 or so other failed cousins, may be a significant harbinger of (insert words "real change") in the industry’s structure.

2. Convoy automates freight brokerage

Automation will continue to disrupt. On December 18, Convoy announced that it had reached 100 percent automatic freight brokering in top freight markets. Aoaeh explains this follows on the heels of the startup raising a $400 million round of venture capital financing just last month.

Several other startups, like Uber Freight and Transfix have been working on refashioning the business of freight brokerage, and venture capitalists notes Aoaeh are showing an appetite for financing these startups.

Aoaeh also points out the theme of automation is likely to go well beyond business process automation, such as that reported by Convoy. Other technology startups are working on automated trucks. Convoy’s announcement suggests that business process automation in the trucking industry is closer than we realize.

3. The Amazon effect

Pricing and the emerging package economy. Aoaeh, like most in the industry, find profit margins in the freight trucking industry are thin, and apparently, getting thinner. The trend of ecommerce growth he notes, coupled with the practice of offering free next-day delivery to consumers, has already compressed trucking companies profit margins and will continue to do so.

Trucking companies that operate in the spot-market are in a position of weakness relative to shippers, and the volume of ecommerce shipments does not matter if every extra shipment is a loss-creating shipment for the trucking company that transports it.

“Amazon is investing a great deal of talent and capital into building its logistics capabilities,” explains Aoaeh, noting that as Amazon’s logistics capabilities have increased it has started competing more directly with UPS and FedEx.

10 must-know statistics

Although most of people’s focus in 2020 will likely be on the navigating the industry and watching out for changing market condition which could go south.

Lynchpin, an industry marketing firm explains that for anyone familiar with the ins and outs of the trucking industry, being familiar with the current statistical data that underpins it is incredibly important. They argue that no matter what, the following won’t change despite heavy weather ahead.

According to Lynchpin, here are 10 must-know statistics regarding the trucking industry and the developments that it experienced over the past year.

  1. Highest GDP In the World – The United States currently stands at the number one spot when it comes to GDP from the trucking industry. The GDP of this industry alone is higher than that of 150 nations in the entire world.
  2. The Job Percentage – The trucking industry takes up a notable chunk of the US employee market with more than 5.8% of jobs in the country being related to the trucking industry.
  3. Biggest Employer – Walmart currently stands as the company with the highest number of hired truckers, standing at 8,600.
  4. Total Weight Carried – In the US, trucks carried approximately 10.8 billion tons of goods across the country.
  5. Preferred Form of Transportation – Almost 70% of the goods transported in the country are carried around by trucks from one state to the other.
  6. Job Diversity – The trucking industry has an incredible amount of diversity with more than 40% of the jobs being held by people belonging to minorities.
  7. Grocery Store Dependence – Grocery stores are massively dependent on truck drivers to carry their goods - most grocery stores would run out within three days if truck drivers stopped delivering their goods.
  8. Job Demand – There is an ever-growing demand for truck drivers and experts believe that the trucking industry needs to hire at least 900,000 more people to meet the growing demand for truck drivers.
  9. Annual Income – In spite of the large demand for truck drivers, the annual income of those working in this position is significantly less as compared to the annual income of most Americans.
  10. Miles Per Year – Truck drivers put in countless hours into the work that they do, and the average truck driver logs in more than 100,000 miles every single year.

Focus on being better than yesterday

The trucking industry is no stranger to adversity and 2019 proves it. But there wasn’t all bad news and the strength of the US economy heading into 2019 will help ease the pain of the shake out. One thing is for certain though, time and tides will see the industry through another year – even in the face of nearly revolutionary change across a number of critical fronts.

And from all of us at the Roemer Report, God bless and here’s to a safe, happy and prosperous new year!

Bob Tales