ATA economist: Trucking must cut capacity to survive tariff-fueled downturn

SAN DIEGO, California—Whatever hope the trucking industry held for a market upturn at the beginning of the year has been decimated by tariffs and the economy, as explained by Bob Costello, chief economist and SVP for the American Trucking Associations (ATA). Without help from the market, it’s up to the industry to save—or correct—itself.

“These continue to be unprecedented times,” Costello said to a crowd of truckers, fleet owners, and industry leaders here at the organization’s annual Management Conference & Exhibition. “We saw the green shoots (at the beginning of the year), and they are gone.”

The green shoots Costello referred to consisted of market inputs that traditionally keep freight moving. These include imported and exported goods, home sales, manufacturing, retail sales, construction projects, and more. Costello attributes tariffs to the obliteration of green shoots, noting that the rate of tariffs hasn’t been this high since the 1930s.

While many hope implementing tariffs will bring more industries back to the U.S., Costello said we won’t see any manufacturing improvement due to tariffs for a while, noting that it would take a minimum of three years for any foreign company to develop state-side operations. 

Essentially, Costello believes tariffs are “a very blunt tool to try to achieve that free and fair trade, and there's going to be casualties, and it's going to hurt, especially around U.S. manufacturing.”

These tariffs are not only hurting manufacturing companies, which import parts to build finished products, but they also cause these companies to pause investments elsewhere, such as hiring new employees. In fact, the manufacturing sector has cut 42,000 jobs over the last four months, he said.

This stagnant job market has caused consumers to slow their spending. Without consumers purchasing goods, there are fewer reasons for trucks to move them.

Consumers have also slowed their spending because of inflation, which Costello said is doomed to rise with the effects of tariffs.

Without a boost from a healthy economy, how will the trucking industry get out of its multi-year slump? According to Costello, the only way trucking will get a leg up is if capacity comes down. In a sense, it’s up to the trucking industry to save itself (think: triage).

Thankfully, there are already signs that capacity is dwindling.

How trucking is trimming the fat

While no one celebrates when a trucking company lays off drivers or when a company exits the market, it’s trucking’s only chance of survival. Since the post-pandemic trucking boom, there has been a downward trend in trucking capacity. According to Costello’s data, trucking capacity is down more than 10% since 2022.

Multiple factors contribute to this decrease in capacity, and regulations will likely lead to even more capacity exits.

Here’s how fleets have decreased capacity organically

Costello said government payouts have largely sustained smaller carriers, but years have passed since those payouts, and the cushion is disappearing. Then there are the lenders who allowed more leniency on truck loan payments that are now becoming more likely to impound, he said. And companies that once built out their private fleets are also pulling the reins on those endeavors.

Going forward, that shrinking capacity could accelerate, Costello said. Less profitable fleets that have taken measures to reduce spending, such as deferring maintenance, will soon be faced with the consequences. It’s those fleets that Costello believes have little hope.

“Interest rates are starting to come down a bit,” Costello said. But “I don't think they're going to come down enough to save a lot of those folks. If we assume freight levels aren't going to really improve that much because of the tariffs, but costs remain high … we will see an acceleration of failures.”

It isn't just market pressure that will continue to accelerate the decrease in capacity. Regulations are poised to help spur the acceleration as well.

Here’s how regulations have and will continue to decrease capacity

English proficiency: On June 25 of this year, the Federal Motor Carrier Safety Administration (FMCSA) ordered that English language proficiency (ELP) requirements can place CDL holders out of service. Since June of this year, there have been more than 5,200 out-of-service violations issued to drivers who could not pass an ELP assessment. However, there have been more than 22,000 ELP violations overall. Costello said these citations primarily come from border states.

“They're issuing a lot of violations in the border zone without putting them out of service,” Costello said. This is “something that [ATA is] watching.”

Regardless, ELP citations are expected to continue, pushing additional drivers out of service.

Cabotage: Another way regulations impact driver and carrier exits is by cracking down on companies that illegally hire Mexican B-1 drivers to haul loads within the U.S., a practice also known as cabotage. 

B-1 drivers are permitted to carry loads across the border; however, carriers that hire these drivers to haul loads from “point to point in the United States—that is not permitted,” Costello said.

Hiring these drivers also expands capacity at a time when the industry desperately needs capacity to shrink. 

ATA is hopeful to see a crackdown on this practice within the industry, according to Costello.

Non-domiciled CDLs: Finally, regulations will likely impact trucking capacity by standardizing non-domiciled CDL issuance across the nation. Earlier this year, FMCSA determined different eligibility, renewal, and paperwork requirements that permit individuals to receive a non-domiciled CDL. Costello said the industry is already seeing the impact of this.

From the “real-time stuff I look at, but also talking to some folks at this meeting and so forth, I think we're already starting to see [the effect],” Costello said. “I think it will have a real impact.”