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The Trucking Industry Once Again Warns About the Recession Risk

The rapid surge of cargo from Asia into the West Coast ports of the United States and the resulting surge in freight be it via rail or trucking, has many believing that the conditions equate to a recession averted or the so called Sasquatch known as the “soft landing.”

Obviously, these pages like to dig behind the numbers and determine if the data actually supports the theory that our nation might well be engaging in a second wave of growth, perhaps this time without the inflationary impulses that happened after the pandemic.

The data that indicates the transportation industry is lagging behind consumer demand should show a substantial leap above 2023, however the Census Bureau report on Advanced Retail Sales from September 30, 2024 should have reflected this theory:

Unfortunately for the market bulls and transportation “please God can we get a break” gang, the reality was far, far different:

So how did parts of the financial media arrive at the conclusion that retail sales are strong and the trucking and transportation industry are not indicating any type of recession threat is real?

The Inventory Accumulation from Asia

The warnings were stark in late September as this story from Fox Business via the NY Post illustrate:

Experts warn of empty shelves, rising prices if port workers strike

The knowledge of the potential east coast port strike had retailers and suppliers to manufacturers stocking up on goods before the strike hit. Since the majority of the product originated in Asia, the risks of those containers being stuck in east coast ports was enough to pour an outsized number of containers into Long Beach, CA versus risking the normal transits to eastern ports.

That resulted in record imports being received at that port so the holiday product for retailers would not be impacted by any labor action. This story from the website GCaptain.com reflects this reality:

Cargo Rush: The Port of Long Beach Just Had Its Busiest Quarter Ever

Thus the rush to stuff America’s warehouses was a huge success as one can see every big box retailer and drug store now has their Christmas merchandise on full display some three weeks before Halloween this year.

This push which has wrapped up for the season had some benefit for the transportation industry, but not across the board for truckers as one might think.

JB Hunt and the Railroads Were Big Winners

JB Hunt is one of the largest transportation companies in North America and it is no longer correct to call their operation a truckload carrier. The quarterly report on October 15th, indicated such quite clearly:

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95% of their operation is centered now on intermodal, dedicated, or final mile operations which basically means the most profitable aspects of the company are truly integrated services for customers taking advantage of cheaper cross country rail rates.

By using stack trains from the West Coast, especially Long Beach, this has given an outlet for the retailers and some manufacturers who were fearful of the prolonged strike damaging the Christmas season for them. However, the impacts of this move only benefited companies which were highly integrated with those operations and thus limiting it’s impact on the trucking industry as a whole.

This integration has spread to other motor carriers, but to understand that this is not a direct reflection of how healthy the economy is, especially when reviewing the trucking companies who participate in over the road operations without large dependency on the rails.

The Data is Still Depressing

Despite signs of life, the data from the trucking industry as a whole is still somewhat depressing.

The Cass Freight Index is a clear sign, something isn’t right with the economy still:

Unlike the post-GFC era, there isn’t even a hint of consistent growth of demand back to pre-pandemic levels.

Data from DAT Services (Freight and Analytics) indicates that the demand for dry van equipment is tanking in 2024:

The ACT(Americas Commercial Transportation Research Co) For Hire Index is a stark reminder that the emergence of dedicated and private fleet operations are having on independent operations:

This indicator is not a good development for the future for those companies that have not adopted a business model similar to XPO or JB Hunt.

The freight rates being paid per the ACT survey supports the idea this is similar to the early 1990’s trucking recession:

The last chart from ACT reflects flagging demand in the Class 8 trucking demand which should alarm many in the industry. Usually by the third quarter of the year, replacement cycles begin and planning on purchases for fiscal year 2025 or the actual year itself.

Lastly, the most important piece of data is probably the most alarming. While those of us who were active in the industry screamed “driver shortages” for years, that problem might actually be coming to fruition as the older owner operator class along with more experienced company drivers retire as they age out of the industry.

The Big Trucking Companies Begin Reporting

To provide some perspective on a true OTR trucking company which focuses primarily on point-to-point deliveries on a truckload basis, here are some slides from Marten Transport’s third quarter presentation.

I would call a 75.2% drop in Operating income y-o-y for quarter to quarter comparisons tragic. If not down right depressing. Having experienced an economic situation like that myself in the old days, we cut the size of our fleet down to meet the new era of demand while attempting to integrate the intermodal solution with our rail partners. Telling 20% of the drivers you are no longer needed is not a fun task, thus why I think retention at all costs in this environment is crucial until a company can no longer to afford to do so.

It’s a positive that utilization is up, but it would appear that increase is coming at a loss on many routes. This is where customer and route analysis, aka, a strategic plan is important; especially if inflation flares up in 2025.

To be honest, I’ve seen 3 CEO’s in my lifetime fired for Operating Ratios above 96. If Q4 is worse, which it probably will be, there will be changes at the top. But why one might ask? The next two slides provide a hint.

If a company is bragging about its DEI/Green agenda anywhere in its financial presentation, they are in deep financial trouble. That’s this author’s standing rule when analyzing transportation corporations.

If I were to advise putting a slide like this into a presentation for shareholders or the private owner of a company I was an officer at, I would have been so fired. If you’re “embracing a positive outlook” that means the company does not have a long term nor short term strategic plan.

A Summary of the New Reality

Old salts like myself tend to not want to admit the reality, but the truth is out there.

As these financial reports come in during the weeks ahead, I shall discuss and post up my opinions on each as time permits via my Patreon page, X (Twitter), and via MacroEdge.net.

The new reality is that Amazon and Walmart logistics redesign has had a pronounced impact on the greater transportation industry that the old management styles are ill-equipped to understand or deal with. Data driven innovation might well assist some of those stuck in the 1990s to 2010s modeling for trucking companies, but the new reality is a sight to behold.

With cargo and load theft rates up at extreme levels post-pandemic, it is no wonder the old modeling for truckload and even LTL carriers no longer works. As an individual who participated in the original beta testing for the Qualcomm tracking and messaging systems, the potential for that tool was seen as a method to mitigate those losses. However in the new environment, fleet operations managers and safety directors do not have enough hats to add “loss mitigation” to their resumes.

It’s reached such an extreme, something that yours truly never saw outside of the Bronx (NY) and Compton, CA during the 1990s, that warnings like this are being transmitted to drivers for HVLs (High Value Loads) as drivers engage in what used to be simple point A to point B deliveries.

The consequences we are witnessing due to cargo hijacking via containers on trains, trucks over the road, and even porch pirates from UPS, FedEx, and Amazon are just part of the declining societal reality one has to prepare for.

As we lurch into the post-election era, there are now two types of transportation and logistics companies after the technological revolution which has occurred.

1. The first group are the integrated logistics solution carriers: JB Hunt, XPO Logistics, TFI, UPS, and FedEx are the best examples.

2. Traditional Truckload/LTL carriers: Old Dominion, SAIA, SEFL, Knight-Swift, Marten, Schneider, Werner, etc.

Old Dominion, Southeastern, and others have managed to find their own niche markets but they are all at risk of falling behind their competitors. The truckload carriers are in much greater danger of decline and failure as their dependency on the scraps from the Tier 1 grouping, aka, undesirable or low cost loads brokered out to the older model, aka, Tier 2, to reposition equipment and produce cash flow.

This will not end well for America once the Tier 1 carriers and railroads achieve overall market dominance as the ability to dictate price for tertiary manufacturers, retailer, and suppliers will increase inflationary pressure from an unexpected quarter of the American economy.

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