Trucking Enters Late Down Cycle

ACT Research noted in a report June 21 that the for-hire trucking market has been rebalancing as the freight cycle nears a turning point. (Aziz Shamuratov/Getty Images)

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The trucking industry has entered the late stages of the freight cycle downturn, but positive destocking trends have helped balance low demand.

“I think the best way to put it is we have not found bottom yet,” said Andy Dyer, president of transportation management at AFS Logistics. “I think the rate of price erosion and the rate of demand decrease have slowed. So, we’re not at the top of the cliff anymore. But we still haven’t found bottom.”

Dyer noted that the slowdown started about midway through the second quarter. He pointed to spot rates experiencing a modest improvement around that time. He noted destocking and consumer demand are trending in a positive direction for transportation providers. But he added that strengthening consumer spending has really been focused on the service economy.

“The pandemic turned all that upside down and everything went heavily toward goods and things because there were no services to go buy,” Dyer said. “We didn’t go anywhere. But now people are really starting to spend their money on services. And I think that is most apparent if you just look at what’s happening in airline and rental car and hotel industries.”

[June For-Hire Trucking Index Now Available] - Freight market rebalances as cycle nears turning point 🔃

Get the index 👉https://t.co/p55iYGCs4n#freight, #logistics, #TL, #LTL, #shipping, #trucking, #transportation, #supplychain, #ACT, #ACTResearch — ACT Research (@actresearch) June 21, 2023

Dyer added that seasonally expected patterns like produce season have been weaker than expected. He believes the industry won’t see any real changes until demand improves, noting it will be a race to the bottom for pricing until then. He also expects the industry could experience an escalation in fleet closures soon.

“I don’t think demand is going to get materially better,” said TD Cowen analyst Jason Seidl. “But remember, I think we’re already in a freight recession and every month we’re seeing more and more carriers come out of the marketplace. One of the things we’ve seen recently is what I would call normal seasonality.”

ACT Research noted in a report June 21 that the for-hire trucking market has been rebalancing as the freight cycle nears a turning point. The report found freight volumes, rates and supply-demand balance all saw positive progress in May. Its trucking volume index jumped to 49.4 points from 37.7 the prior month as destocking began to slow.

“While demand remains soft, less destocking may be starting to add to freight available to haul,” said Tim Denoyer, vice president and senior analyst at ACT. “Although volumes remain in a slight contraction, this large improvement in our fleet survey suggests we’re in the later stages of the freight downturn.”

Seidl suspects the second quarter was when the down cycle was at its worst. He pointed to the return to seasonality and increased port activity as positive signs. But even then he doesn’t expect the rest of the year to be all that strong even as things improve somewhat each quarter. He also noted destocking efforts are balancing out, but very slowly.

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Tsui 

“I’m not so sure they’re totally through them,” Seidl said. “But it sounds like we’re moving in the right direction. One or two might be saying they’re close to normalization and now we just need restocking again, or at least stocking to normal levels. So, it’s kind of relying on the consumer going forward. But I think that early thing that sort of triggered the pressure in the truckload marketplace late last year, that was the result of just the destocking that was taking place.”

Floship CEO Josh Tsui noted the impact of the pandemic on trucking can be summarized in three phases from initial disruption, recovery and transformation. The transformation phase is defined by significant changes in consumer behavior, technology and supply chain operations.

“I think it’s quite clear that trucking-wise, we’re definitely in the transformation phase right now and it’s still ongoing,” Tsui said. “It’s not just the trucking industry as well, or the freight side, because it’s all parts of the supply chain. But even after a year, pretty much when the pandemic ended, we’re still trying to adjust to changes in consumer behavior.”

Tsui believes trucking truly left the pandemic behind about a year ago. He noted at first the industry took some time to recover, but over the last half a year every company in the supply chain has been trying to get a good grasp of how things have changed and how to adapt. He believes they’re starting to get a better feel for what the new normal is.

“The macroeconomic changes have started to settle down,” Tsui said. “I think one of the biggest questions for half a year was when is the recession hitting and it almost feels like we’re just going to skirt past it and just miss a true recession. Even if we do dip into it, we’ll probably be out of it pretty soon. So, I think we’re starting to get a feel for what that new normal is looking like and we just need to really figure out and adapt our strategies.”