cURL Error: 0{"id":105701,"date":"2023-11-08T10:33:32","date_gmt":"2023-11-08T10:33:32","guid":{"rendered":"https:\/\/gotrucking.news\/trucking-bloodbath-persists-despite-gdp-growth-9\/"},"modified":"2023-11-08T10:33:32","modified_gmt":"2023-11-08T10:33:32","slug":"trucking-bloodbath-persists-despite-gdp-growth-9","status":"publish","type":"post","link":"https:\/\/gotrucking.news\/trucking-bloodbath-persists-despite-gdp-growth-9\/","title":{"rendered":"Trucking bloodbath persists despite GDP growth"},"content":{"rendered":"

Ohio resident Matthew James Collins hauls frozen food around the Midwest \u2014 onion rings, ice cream and the like. On a recent October morning, Collins was trucking through a snowstorm in Minnesota.
\nHe wasn\u2019t carrying much. Collins recalled when he ran this route last year, he would regularly move 22 skids of frozen foods (a type of pallet) for four different corporate accounts. Now he\u2019s moving just 12 skids for two clients.
\nThe health of the trucking industry is typically a good gauge for how the U.S. economy at large is faring. That\u2019s not the case right now. Economists remain stunned by how much stuff Americans are buying amid historic inflation and interest rate hikes. At the same time, the trucking industry is embroiled in a meltdown that\u2019s slamming operators large and small.
\n\u201cIt doesn\u2019t even seem like the broader economy even knows we\u2019re in a recession,\u201d said Steve Troyer, president of California Midwest Xpress, a 30-truck fleet. \u201cBut we\u2019re in a good one.\u201d
\nAmericans are spending a larger chunk of their income on durable goods than they did before the pandemic, according to Goldman Sachs research. The U.S. economy saw \u201cblockbuster\u201d growth in the third quarter of 2023; it was the biggest surge in nearly two years, and attributed in part to increased consumer spending. Around 72.6% of the nation\u2019s freight by weight is hauled by semi-truck. If Americans are buying so much, why aren\u2019t truckers seeing a boon?
\nThis trucking bloodbath is particularly gory
\nTrucking is a highly cyclical industry. During good times, manufacturers deliver more equipment to trucking fleets that want to expand and capture that surfeit of business and profits. Individuals open their own trucking fleets too.
\nThe boom time typically lasts for under a year. Inevitably, so much capacity enters the industry and depresses rates again. Whatever trend outside of trucking that was spurring all of that new demand usually runs dry too. That means too many trucks and not enough freight to move.
\nThe federal government tracks the number of trucking authorities created or shut down every month. Authorities are often put out of service after they fail to pay insurance premiums. In typical upcycles, a few hundred net trucking authorities are created, then a few hundred net trucking authorities are destroyed when the market flips less than a year later.
\nTens of thousands of trucking companies were created during 2020 to 2022. The overwhelming majority were just one driver. (Source: FreightWaves SONAR)
\nThe most recent freight upcycle quashed that pattern. The upcycle began around June 2020, when the federal government approved about 500 net trucking authorities. That reached a fever pitch in the summer of 2021, when around 2,000 net trucking authorities were created in a single month. It wasn\u2019t until June 2022 when the cycle turned and net trucking authorities flipped back to negative.
\nThe pandemic trucking boom lasted twice as long as a typical upswing. And each month created many times more trucking companies than a typical red-hot trucking month.
\nThere\u2019s still a massive excess of trucking authorities, according to federal data. In January 2020, there were around 255,000 authorities. Now there are around 363,000 authorities. Most of these businesses are small fleets with fewer than 10 drivers.
\nTens of thousands of those new carriers have already shut down. According to a FreightWaves analysis of federal data, an estimated 35,000 new trucking companies shuttered in the fiscal year ending Sept. 30. For the 10 years before that, the average number of out-of-service orders was 15,585.
\nAverage per-mile spot rates for trucking fleets have hit $1.54, down 11.6% from 2022 and 34.4% from 2021, according to the FreightWaves National Truckload Index. At the same time, the costs of fuel, replacement parts, insurance and other key inputs have soared.
\nBrian Carle, a New Mexico truck driver who has his own authority, said jobs are so scarce and poorly paid right now that he has to save up just to get an oil change. His gross earnings this year will be about 33% less than they were in 2021 \u2014 but the cost of everything, like repairs, diesel and routine maintenance, has soared.
\n\u201cEverything I\u2019m paying for, I\u2019m not getting paid more for,\u201d Carle said. \u201cSomething\u2019s gonna break.\u201d
\nTruckload rates are low for this time of year. (Source: FreightWaves SONAR)
\nReflecting that, trucking carriers are only rejecting some 3.5% of contract loads, according to the FreightWaves Outbound Tender Reject Index. That\u2019s even lower than 2019 and 2022, two challenging years for truckers.
\nRejection rates for outbound freight tenders in 2023, represented by the bottom blue line, remain depressed. (Source: FreightWaves SONAR)
\n\u201cWe\u2019re going to have to see trucks leave the market for rates to come back down,\u201d said Collins, the Ohio truck driver. \u201cWe also need a stronger economy for rates to come back up.\u201d
\nAmerican consumers are buying stuff again. Woo-hoo!
\nThe U.S. economy grew faster than expected in the third quarter of 2023. At 4.9%, it was the biggest uptick since the fourth quarter of 2021. Much of that boost came from increased purchases of durable goods; new orders for durable goods are up 4.4% so far this year compared to 2022.
\nFor this increase, thank the slowdown of inflation \u2014 and the relentless American urge to go on a shopping spree.
\n\u201cWhen the economic history of the early 21st century comes to be written, the opening sentence in a bold font should be \u2018never go short the hedonism of the US consumer,\u2019\u201d wrote Paul Donovan, UBS global chief economist, in a note last Friday. \u201cMiddle-income consumers have lower inflation than consumer price data implies, giving them more spending power.\u201d
\nAmericans are still buying a lot of stuff, despite the Federal Reserve\u2019s attempts to curb spending and corporate zeal to increase the price of everything. Joseph Politano, author of the financial newsletter Apricitas Economics, said continued strong spending reflects the strong labor market.
\n\u201cThe vast majority of people spend a fixed portion, which is the majority of their income, on things,\u201d Politano said. \u201cOver the last year, you have 3.2 million new jobs and employment rates at a very high level. It shouldn\u2019t be too surprising that spending is remaining strong under those conditions.\u201d
\nSpendy American consumers aren\u2019t saving trucking
\nNo one expected the 2020 to 2021 spending spree to last.
\n\u201cYou had like those insane months where there was a million new jobs and spending growth was 9%,\u201d Politano said. \u201cObviously, no one ever expected that to [last] forever.\u201d
\nHowever, that didn\u2019t stop more than 100,000 truck drivers from opening up their own trucking companies. And while it\u2019s easy enough for the American consumer to scale up or scale down their spending, truck drivers can\u2019t turn on or off their level of capacity as seamlessly.
\nThe only level of freight demand that could support that \u201cexcess\u201d trucking capacity is one that matches the Great Shopping Spree of 2021. That level of consumerism \u2014 where more than 100 container ships are waiting to unload at the ports of Los Angeles and Long Beach, full of stuff purchased with stimulus checks \u2014 was likely a once-in-a-lifetime event.
\nAnalysts believe that the trucking industry will only become healthy again when a significant chunk of those authorities are cleared out. That likely means the collapse of tens of thousands of trucking businesses, even beyond the tens of thousands that have already shut down.
\nFor his part, Carle, the New Mexico truck driver, isn\u2019t keen on closing down his business. \u201cI don\u2019t want to give up what I\u2019ve worked so hard for.\u201d
\nAre you a carrier, shipper, or broker? Email [email protected] with your experience of the trucking bloodbath. Please subscribe to the MODES newsletter for weekly updates.<\/p>\n","protected":false},"excerpt":{"rendered":"