COVID-19 has had a tremendous impact on practically every sector of the American economy. Freight markets and the transportation industry, in general, are reeling under the shock of the coronavirus. Many trucking companies have been hit particularly hard.
Consequently, the trucking industry outlook might seem bleak.
However, every section of commercial trucking has not been affected in the same manner.
Sean McNally, a spokesman for the four million-member American Trucking Associations, explains:
“If you’re a carrier engaged in grocery deliveries or the medical supply chain, you have been busy…(but) if you’re a carrier that hauls primarily fuel or to manufacturing centers, you are seeing anything from a slowdown to a cratering of demand.”
So, is the trucking industry outlook unfavorable on the whole? Or do truckers and trucking companies need to reassign their fleets and look for business in areas that are showing growth?
In this post, we’ll first examine the trucking industry’s state before it was affected by the current crisis. Subsequently, we’ll see the changes that COVID-19 has brought about. Finally, the last section will analyze how the coronavirus could permanently influence the trucking industry outlook in 2021 and beyond.
The trucking industry before COVID-19
2019 was tough for the trucking and freight markets. That’s because 2018 was a boom year and a hard act to follow. In 2018, the freight market had its best year since deregulation in 1980.
The Cass Truckload Linehaul Index is an indicator that measures market fluctuations in per-mile truckload pricing and shows the transportation industry trends.
According to the index, per-mile truckload linehaul rates peaked in 2018. This happened because of three factors:
- An increase in freight volumes.
- Strong consumer spending.
- Tightened capacity due to the implementation of Electronic Logging Devices (ELDs).
About ELDs: These devices record driving hours and help implement the law, which mandates the maximum number of hours a trucker can drive in a specific period. Electronic monitoring of the time truck-drivers were at the wheel resulted in more effective enforcement of hours of service (HOS) regulations leading to a reduction in the time that many drivers spent on the road.
Long-term view of the Cass Truckload Linehaul Index
Source: Cass Truckload Linehaul Index
But 2019, saw the trucking industry outlook changing. Bob Costello, the chief economist of the American Trucking Associations, says that the trade dispute between the U.S. and China contributed to a decline in freight demand. Additionally, there was a slowdown in U.S. manufacturing coupled with an oversupply of trucks.
As a result, freight rates plummeted 27 percent in 2019 from their peak in the previous year.
What effect did this have on the trucking industry?
By September 30, 2019, 795 trucking companies had shut down or declared bankruptcy. The trucking industry outlook had turned negative in the latter part of the year. But worse was to come.
In 2020, COVID-19 made the situation even more difficult for the transport sector.
The impact of COVID-19 in the trucking industry: 2020
The year 2020 has been a disaster for many truckers. With vast swathes of the country affected by lockdown and the decline in industrial production, the demand for transporting goods has gone down sharply.
This has created overcapacity in the industry and driven freight rates to uneconomical levels.
Consider a recent report that illustrates the extent to which freight rates have fallen. According to the truck driver interviewed for the story, a run from Los Angeles to the Arizona border formerly paid $1,800 to $2,300. With the impact of COVID-19 and the consequent overcapacity, rates have fallen to a piffling $350.
Of course, a single example doesn’t represent the entire industry, but it is illustrative of the trucking industry outlook in current times.
Let’s come to the question of why freight rates have fallen so dramatically.
It’s important to understand that freight brokers play an important role in matching truckers with businesses that want to transport goods.
There are about 18,000 freight brokers in the country. And currently, there are too many truckers chasing lower freight volumes. As a result, freight rates have crashed.
Because of the downturn, the trucking industry outlook may seem discouraging. Many trucking companies could be facing a cash crunch.
If your trucking business is facing a cash crunch, Camino Financial could be an excellent source for cash. We offer truck financing for your small business as well as loans for business-related capital purchases and expenses.
Trucking industry outlook: 2021 and beyond
The fate of the transportation sector is closely linked with the country’s economic performance. According to the Atlanta Fed, the recently concluded second quarter of 2020 (the three months from April to June 2020) could see the economy contracting by 52.8%.
But the third quarter could see a sharp recovery.
So, the worst could now be behind us.
Yardeni Research, an investment consulting firm, predicts that third-quarter GDP could rebound by 20%. And this would be followed by an increase of 5% in Quarter 4.
If these numbers are correct, the transport industry outlook could change for the better. Personal consumption would rise, manufacturing activity would pick up, and the demand for transportation services would increase.
It seems that better times lie ahead for the trucking industry.
However, despite the rise in business activity and increased demand for shipping goods across the country, the transportation sector could see irreversible changes.
A “new normal” may emerge because of COVID-19.
Trucknews.com’s editorial director, John G. Smith, thinks that some of the changes we may see are:
- Social distancing may become a permanent feature until a vaccine is available. That means facemasks could become universal.
- Work from home (WFH) could become permanent for many non-essential functions.
- The move towards electronic communications and less paperwork could gather pace.
It’s highly probable that the trucking industry outlook will rebound in the near-term. And, as the economy improves and business activity picks up, there is likely to be an increase in demand for freight companies’ services.
Trucking companies that have seen a drop in demand should do their best to take advantage of this resurgence.
Did you find the information in this post useful?
We invite you to subscribe to the Camino Financial Newsletter to receive regular updates on topics of interest to small business owners. We share articles, tips, and resources that can help you market your products and services more effectively and boost your profitability. That way, your business will be able to face the new normal head-on ad come out victorious.
This is part of our endeavor to live by our motto, “No business left behind.”