If you’re on the for-hire side of trucking or have to compete with it, it’s no secret that freight rates have been a bit soft and volumes off for the past few months. And now it looks like that softness will extend through the end of the year and possibly into the first month or two of the new one. While that’s not great news, the sky isn’t falling. So why, then, are we seeing so many dark reports from the analysts and others in the industry, some even raising the dreaded recession word in their forecasts?
I think we’re still feeling the aftereffects of the Great Recession. After the extended pain of the last downturn, most analysts are understandably gun-shy about missing the first signs of the next one. In such an environment, short-term conditions take on ominous overtones since people are much more likely to forgive a miss on an upswing than they are optimism blinding them to a downturn.
I also think we’re experiencing some gamesmanship on the part of publicly traded carriers. It’s a little easier for investors to swallow less than great earnings news when you can point to the general economy and distract their attention from your more specific problems getting enough drivers to seat all your trucks.
In short, we’re all inclined to find pessimistic economic news credible because of recent history and to discount all the signs that point to an economy that’s largely recovered from that shock.
But let’s look at those signs. You can’t ignore the strong freight environment enjoyed in 2014, and when the numbers for this year are finally tallied, they will be off a bit from that high, but still quite good even with rates softening.
I also believe that heavy-truck sales are a good barometer of the industry’s health. While we’ll probably never again see the highs experienced in 2006, this year North American Class 8 sales are expected to hit 330,000 units. That’s a lot of new trucks, meaning fleets are positioned to cut operating expenses with more fuel-efficient and more reliable equipment over the next few years. And the consensus among the truck makers is that 2016 sales will be perhaps 10% lower but still higher than 2014, which was also considered a good year for Class 8 sales.
As for freight, I’ve always found Bob Costello, the American Trucking Assns.’ chief economist, to have a reliable perspective on conditions, one that’s neither too optimistic nor too pessimistic. His take on the current freight environment is that it’s due to an inventory buildup by shippers earlier this year, a buildup that ironically was driven by worries over tight trucking capacity. Manufacturers and retailers are now drawing down those inventories, leading to eased freight demand. But once they complete that process, volumes will pick up again in Costello’s reading of the situation. And early reports on the fourth quarter show stronger-than-expected consumer demand, meaning that drawdown won’t be drawn out.
Of course there are always wild cards that can and will pop up to disrupt even well-reasoned forecasts. For example, the highway bill with its cornucopia of competing truck-related amendments could both hurt and help efficient truck operations, and almost anything could happen before it emerges in its final form. And global events, be they the horrors of terrorism or the more invisible threats of currency manipulation, are always realistic concerns even for a domestic industry like trucking.
All things considered, though, the trucking industry should be looking forward to 2016.
