August 2019 The Roemer Report

Trucking industry losing momentum as some fleets turn hard into the slide. Shipments and rates down; insurance up.

The trucking industry’s recent performance is a mixed load; the near-term outlook likely is a bit of uneven road. It seems despite major positive economic drivers earlier in the year, including solid GDP growth and low unemployment, the freight economy did not have sufficient staying power to soften the landing of one of trucking’s unpleasantly familiar business cycles.

Shippers started pumping the brakes before Christmas

Analyst Wolf Richter of Wolfstreet.com explains in recent months trucking companies have been facing a very different market than in 2018 through last summer. “Shipments by all modes of transportation – truck, rail, air, and barge – fell on a year-over-year basis for the fourth month in a row in March, according to the Cass Freight Index, which tracks shipments of goods for the consumer and industrial economy but does not cover bulk commodities, such as grains or chemicals.” According to Richter, they were the first year-over-year declines since the transportation recession of 2015 and 2016.

Richter reported in May that companies were beginning to discuss the consequences of a downtick in volume on an increase in capacity, noting from a Seeking Alpha transcript that Greg Gantt, CEO of Old Dominion Freight Line made reference to the trucking economy’s skid during the prominent company’s Q1 earnings call.

“So, we’re just seeing some aggression that we have not seen in prior years. It’s not widespread at this point, but we are seeing some. So I think time will better tell that story, but we have seen a little more aggression than we’ve been used over the last couple of years.”

While that is a relatively opaque statement, Richter notes the effect these downturns can have on the trucking industry as a whole: “when truckers are starting to have to fret over cutting prices in order to maintain volume, it’s also time to review the orders for new equipment and cull non-essentials. And it ripples across the industry.”

Good news?! The not-so-good news is less bad now

In July Tim Denoyer, a senior analyst with ACT Research’s offered a glimpse of optimism along with their industry report: “It’s a good news/bad news report this month,” he explained. “The bad news is we’re in a freight recession and the factors we focus on tell us spot rates are headed still lower near-term, but that’s been going on for a while. The good news is that for the first time this cycle, we see evidence on the horizon for an eventual bottoming and upturn in spot truckload rates, thanks to low new truck orders and improving capital discipline from the trucking industry.”

ACT Research is recognized as the leading publisher of commercial vehicle truck, trailer, bus industry data, and market analysis. According to the company, ACT’s research findings are utilized by all major North American truck and trailer manufacturers and their suppliers, transportation and logistics companies.

Also noting ACT Research’s findings, FreightWaves consolidated the metrics of decline:

  • Cass Freight Index down 6 percent in May, marking the sixth consecutive month of declines on a year-over-year basis.
  • Less-than-truckload tonnage was lower for seven of the last eight months falling 4.3 percent in May compared to the same month a year ago.
  • Volumes at the seven Class I railroads (SONAR: RTOTC.CLASSI) declined for 26 straight weeks after three strong weeks in January. (During these three weeks the railroads carried Chinese freight shipped ahead of expected tariff increases in January that did not go into effect until June.)
  • ACT’s For-Hire Trucking Index stood at 46.7 in May based on an index of 50 being neutral. Publicly traded shippers report to ACT how many loads are in the marketplace.
  • The DAT Solutions Trendlines spot market loads declined for 10 consecutive months. It was down 50 percent year-over-year in June after a 70 percent decline in May compared with May 2018.

But ACT’s Denoyer finds things will balance out eventually. “The Truckload Rate Gauge is currently signaling significant overcapacity, favoring shippers in rate negotiations. But based on our expectation for a decline in U.S. Class 8 tractor build rates later in the year, the supply side should begin to improve.”

Nevertheless, there’s fallout

Google search “Truck Fleet Closes Doors” and the first page reveals four fleet operators shutting down in the last four months. Though anecdotal, the final accounting as it were, will continue to see casualties as trucking fleets, unable to cope with rising costs and fewer orders, see their businesses fail.

But not all industry headlines are glum; there have been several recent announcements of fleets having their best returns ever. Case in point, Landstar reported record earnings for the second quarter in July.

Citing recent data, FreightWave’s analysists found trucking company failures have been quite low both on an absolute and relative basis over the past several years (outside of a small increase in 2013-2014). “In fact, trucking company failures reached an all-time low in 2018 across the 30 years of data,” note FreightWaves staff who analysed truck firm failures going back to 1990. According to their research, it’s s been 11 years since the trucking market has seen “a really significant bout of failures.” So, we will certainly be interested to see how this statistic shakes out.

Leading Causes of Trucking Failures

FreightWave analysts explain that when considering the leading causes for trucking failures, the principal qualitative reasons most often cited by the failing companies and the media include the following (which are not mutually exclusive and often co-dependent):

  1. Recessions
  2. Falling contract and spot prices
  3. Rising diesel prices
  4. Increases in insurance costs
  5. High labor and maintenance costs
  6. Unionized labor forces
  7. Onerous contracts with large shippers (e.g. Amazon)

FreightWaves says that all makes a great deal of sense on the surface and most of them likely do play a significant part in many failures.

Tips on how to lower commercial truck insurance rates

Commercial truck insurance rates are often blamed for motor-carrier failures - and loudly and that. Especially with recently reported failures. But there are ways to manage the costs. Following are a few top tips most commercial truck fleet insurance companies agree can help keep truck insurance premiums manageable and lower operational risk:

Experienced drivers are key

Years of driving experience is a key factors commercial truck insurance providers use to calculate truck insurance premiums.

Age of drivers

According to statistics truck drivers who are either very young or very old tend to more prone to accidents. Drivers between 30 and 62 years of age are recommended but hiring in this sweet spot is challenging and training programs for younger drivers may offers some rate relief.

Hire drivers with clean driving records

A no-brainer for sure, but driving records really count. Drivers that maintain long-term safe driving records will always be less costly to insure.

Verify driver employment history

Experience counts and hiring drivers with solid equipment and route experience will help lower risk and commercial truck insurance costs. References and evaluations are called for.

Get your routes straight

Route selection impact your commercial truck driver insurance premium. Factors include population density, frequency of inclement weather, and so on.

Keep your equipment straight

The age, condition, and value of the trucks in your fleet have everything to do with keeping commercial truck insurance rates down. Maintenance, specifying safety technologies, driver safety features and more can have a dramatic effect keeping rates manageable.

Keep your business on the road

Businesses with a track record of staying in business and maintaining their operating authority are considered less risky to insure than brand-new entities.

Keep your DOT safety record clean

A DOT safety record includes owner-operator and/or fleet DOT safety rating, Safestat and Inspection, Selection (ISS-2) scores. Maintain it!

Deploy safety features/programs, rinse and repeat

Instituting company safety programs and comprehensive driver safety training demonstrates safety and less risk. Insurance premiums grow on risk.

Tough times, tough players

It’s clear the trucking industry’s in for a bumpy ride, but analysts seem to agree that the cycle is bottoming and poised to inexorably rise as shipping orders return. There’s plenty of evidence companies are weathering the storm and better conditions will return. How fast? That’s open to much conjecture, and with trade issues on the table with major trading partners roiling things the trucking industry is likely to encounter a few more potholes.