US trucking screeches to a halt amid fears of recession crash

Los Angeles — Craig Fuller monitors millions of transactions between US truckers and their customers as CEO of transportation data company FreightWaves — and he does not like what he is seeing.

There has been an unexpectedly sharp downturn in demand to truck everything from food to furniture since the beginning of March and rates in the overheated segment that deals in on-demand trucking jobs — known as the spot market — are skidding.

“It basically just dropped off a cliff,” said Fuller, who is concerned that the US is at the start of a trucking recession that could decimate truckers’ ability to dictate prices and might push small trucking firms into bankruptcy.

Meanwhile, investors and financial analysts worry what will happen if the trucking slump deepens and spreads.

History has proven trucking to be a possible indicator for the US economy. That is because when people buy less, companies ship less — and business activity slows. Economic recessions followed six of the 12 trucking recessions since 1972, according to an analysis by trucking data company Convoy. 

Experts predicted trucking would soften a bit as pandemic-weary consumers shifted spending from goods to services in response to the US lifting Covid-19 prevention measures. But they did not foresee Russia’s invasion of Ukraine, which sent fuel prices to record highs, jolted already volatile stock markets and forced shoppers to hit pause.

And now trucking’s most demand-sensitive sector — the spot market — is in correction territory.

“It is the proverbial canary in the mineshaft,” said Joseph Rajkovacz, director of governmental affairs for the Western States Trucking Association. The group represents small trucking companies that dominate the spot market, which handled as much as 30% of freight during the height of the pandemic.

The spot rate deterioration hit when diesel prices were roughly doubling, battering the take-home pay of truckers like Marco Padilla.

A few years ago, California-based Padilla spent 25c-30c per mile to run his truck. “So for every dollar [of pay], I was pocketing 70c. Now it costs $1 a mile,” said Padilla.

Average first-quarter spot rates, excluding fuel, dived 55c from $2.78 per mile in mid-January to $2.23 on April 14. Spot rates normally drop about 22c per mile during that period, said Dean Croke, freight market analyst at DAT Freight & Analytics.

While spot rates remained 37c per mile above what they were during the last bull market for trucking in April 2018, they fell 6c year on year earlier in April — marking the first such reversal of the current cycle.

“That’s where the fear is. Is that the floor? Does this keep going?” Croke said of the demand-led decline.

The share of freight handled by the US spot trucking market roughly doubled after consumer spending on durable goods surged about 20% during the pandemic. In their rush to keep up, retailers and other shippers focused on speed over efficiency — using more trucks and increasing demand for them.

At one point the truckload spot market was handling more than 1-million loads a day, versus its historical average of about 400,000, said Brent Hutto, chief relationship officer at TruckStop, which — like DAT — matches truckers with spot market loads.

But demand tumbled in March, when retail sales excluding purchases of petrol fell 0.3%. Online sales, which surged during the pandemic, declined for the second month in a row.

Skyrocketing diesel prices convinced shippers to wait to fill truck trailers, rather than rushing them out partially loaded — further moderating demand, analysts said.

Big trucking firms like JB Hunt Transport Services and Knight-Swift Transportation Holdings are somewhat insulated by their one-year, fixed-price contracts with companies ranging from Walmart and Home Depot to Procter & Gamble. Walmart and many other companies have in-house trucking while also employing outside firms.

Stifel transportation analyst Bert Subin said in a research note that he expects soft truckload demand in the second and third quarters, followed by a holiday season-fuelled fourth-quarter rebound. Deutsche Bank earlier in April predicted interest rate hikes will tip the US into recession in 2023.

Meanwhile, shippers are asking for shorter trucking contracts, “given their belief that rates may tick lower”, Cowen transportation analysts said in a recent note.

Indeed, executives like Fraser Townley, CEO of video gaming controller seller T2M, are celebrating the declining trucking prices as a relief to their profit margins.

“They’re about one-third down. There’s still a long way to go,” Townley said.

Reuters