Analysis-U.S. trucking downturn foreshadows possible economic gloom
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[April 25, 2022] By
Lisa Baertlein
(Reuters) - Craig Fuller monitors millions
of transactions between U.S. truckers and their customers as chief
executive 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 United States is at the start of a trucking recession that
could decimate truckers' ability to dictate prices and push some small
trucking firms into bankruptcy.
Meanwhile, investors and financial analysts worry what will happen if
the trucking slump deepens and spreads.
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History has proven trucking to be a possible indicator for the U.S.
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.
GRAPHIC-U.S. trucking demand skids in 2022 -
https://graphics.reuters.com/USA-SHIPPING/TRUCKING/
jnpweremrpw/chart.png
Experts predicted trucking would soften a bit as pandemic-weary
consumers shifted some spending from goods to services in response to
the United States lifting COVID 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,
63.
A few years ago, California-based Padilla spent 25-30 cents per mile to
run his truck. "So for every dollar (of pay), I was pocketing 70 cents.
Now it costs $1 a mile," said Padilla.
Average first-quarter spot rates, excluding fuel, dove 55 cents from
$2.78 per mile in mid-January to $2.23 on April 14. Spot rates normally
drop about 22 cents per mile during that period, said Dean Croke,
freight market analyst at DAT Freight & Analytics.
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Two freight trucks are driven on the Fisher freeway in Detroit,
Michigan March 27, 2009. REUTERS/Rebecca Cook/File Photo
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While spot rates remained 37 cents per mile above what they were during the last
bull market for trucking in April 2018, they fell 6 cents year-over-year earlier
this month - 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.
BOOM TO BUST?
The share of freight handled by the U.S. spot trucking market roughly doubled
after consumer spending on durable goods surged some 20% during the pandemic. In
their rush to keep up, retailers and other shippers focused on speed over
efficiency - using more trucks and exacerbating demand for them.
At one point, the truckload spot market was handling more than 1 million loads
per day, versus its historical average of about 400,000, said Brent Hutto, chief
relationship officer at TruckStop.com, which - like DAT - matches truckers with
spot market loads.
But demand tumbled in March, when retail sales excluding purchases of gasoline
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.
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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-fueled fourth-quarter rebound. Deutsche Bank earlier this month predicted
interest rate hikes will tip the United States into recession next year.
Meanwhile, some shippers are asking for shorter trucking contracts, "given their
belief that rates may tick lower," Cowen transportation analysts said in a
recent note.
Indeed, some 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.
(Reporting by Lisa Baertlein in Los Angeles; Additional reporting by Tina Bellon
in Austin; Editing by Ben Klayman and Lisa Shumaker)
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