World trade levels have fallen below its October 2013 levels. That has dragged down the U.S. freight industry. According to the Cass Freight Index (which does not include commodities) freight shipments by truck and rail were the worst by volume since 2010. In other words, U.S. freight shipments of consumer packaged goods, food, automotive, chemical, heavy equipment, OEM, and retail have all slowed. The U.S. economic recovery is primarily a matter of service jobs, not goods.
The meltdown of U.S. exports is partly to blame. Trucks are no longer benefiting from supply chains that are part of global trade. Closer to home, there is lack of consumer confidence and spending. Inventories remain at high levels and consumer spending on goods is weak. Pharmaceuticals, which account for over 12% of total wholesale sales are a bigger category than groceries, but their increased sales have been due to price increases, not purchase volume increases. The success of the pharmaceutical industry has not helped the freight sector because pharmaceuticals are small, expensive, and small volume shipments, but they tilt the economic data more positively than they should. Consumer confidence for the weak ending July 19. 2016 show a gloomy score of -17. One third of Americans think their own economic situation is “poor.” This is despite asset bubbles in U.S. stocks and bonds and real estate.
During the peak in trucking demand in 2015, larger operators were able to benefit but smaller operators had trouble handling costs and new regulations that capped emissions and limited drivers’ hours on the road. Smaller operators make up the majority of for-hire fleets on the road. These smaller firms, with an average fleet of about a dozen vehicles, have either gone out of business or sold out to larger competitors. Many mid-size operators, with around 100 vehicles, do not expand their fleets because it is too risky to borrow or buy new equipment in the face of uncertain costs. Both 2015 and 2016 have seen increases in the number of bankruptcies, closures, and sales of smaller trucking firms.
In contrast, the largest trucking companies have used the opportunity to expand rapidly by buying new equipment at record-low rates. Retiring personnel and shorter hours mean there is greater demand for truck drivers, which has pushed up salaries and bonuses. Again, the largest companies are the most competitive employers.
As in the ocean transport industry, excess capacity and weak demand are to blame for a slowdown in the trucking and rail sectors. The trucking industry is also bearing increased costs related to labor, government regulation, and equipment purchases. It is only a matter of time before trucking rates begin to rise significantly. FedEx Freight has already raised rates for 2016 and Con-Way Freight followed soon after. Shippers without contracts and established relationships are likely to suffer the most from increased trucking rates. Under this scenario, it becomes imperative that a shipper work with a competent freight forwarder with strong industry connections. Doing so could make this difference between reaching market on time at a reasonable cost, or not reaching it at all.