The Truckload Freight Industry in North America in 2019

There are approximately 540,000 truckload carriers registered with the Federal Motor Carrier Safety Administration in the United States. These range from 1 truck to 20,000 truck fleets. The majority have less than 20 pieces of equipment in their fleets. These companies generated approximately $350 billion in revenue in 2018.

Revenue/Tonnage Growth in 2018

Here is a link to the top 50 truckload carriers in the United States and Canada that are listed in Transport Topics (https://www.ttnews.com/top100/tl/2018). Swift Transportation, Schneider National, Landstar System, J.B. Hunt Transportation Services, and Penske Logistics are the five largest US based truckload carriers; TFI (formerly TransForce International), Mullen Group, Canada Cartage, Bison Transport and Challenger Motor Freight are Canada’s largest truckload operators. It should be noted that TFI that has its head office in Canada now derives a significant share of its revenues from the United States.

Truckload revenue rose quickly last year, with the revenue growth rate of the 25 largest truckload carriers rising 13.7 percent as their combined revenue reached $31.9 billion, according to the 2018 ranking of the Top 25 Truckload Carriers, also prepared by SJ Consulting. That’s a 21 percent increase in combined revenue for those carriers in a two-year period. The Top 25 truckload carriers represent a fraction of the truckload market, which is dominated by companies with fewer than 100 trucks. But the 25 largest fleets command significant capacity, fielding large fleets that haul high volumes of freight for the largest US shippers. The 25 largest carriers in both trucking sectors increased their combined revenue 12.1 percent to $70.6 billion in 2018, a 20.7 percent increase over the $58.5 billion they shared in 2016.

The Top 25 truckload carriers included 15 companies that enjoyed double-digit growth, led by flatbed operator Daseke that grew through multiple acquisitions in 2017 and 2018. That made Daseke the fastest-growing carrier in the Top 25 rankings for 2018. The next 14 truckload carriers boosted revenue from 11.2 to 31.9 percent.

Freight Activities in Mid-2019 have Slowed

According to the Cass Freight Index, May shipments, at 1.128, slipped 6% annually and were down 2.8% compared to April. The ATA’s advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index for May, at 114 (2015=100) fell 6.1% compared to April’s 121.8, which was up 7% over March. Similarly, the Association of American Railroads (AAR) reported that in May overall freight rail volume fell 4.1% from a year ago. The segment of intermodal freight volume – such as containers hauled by truck and then transferred to rail, or semi-truck trailers that piggyback on special rail cars – dropped 5.9%.

This marks the sixth consecutive month that annual truck shipments were down, following a 3.2% decline in April and a 1% decline in March. It should be noted that the index for 2019, while below 2018, remains solidly above 2017 and all prior years. In late 2017 and through summer of 2018, freight rates had been driven up by a capacity crunch in the trucking industry, and a panic among shippers – such as big retailers or industrial companies that needed to get their merchandise across the country – that trucking companies would not be able to keep up with demand.

To meet that demand, truckers went on a buying spree, ordering a record number of Class-8 trucks that now have entered service. Now the market is oversupplied with capacity; orders for Class-8 trucks collapsed by 71% in May compared to May last year, and freight rates have dipped year over year for six months straight.

What to Expect from the Truckload Sector for the Balance of the Year

Donald Broughton, the Cass report’s author and principal of Broughton Capital, wrote that with May shipments down 6%, he sees the current state of the shipments index as going from “warning of a potential slowdown” to “signaling an economic contraction.”

“The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices and the decline in interest rates have joined the chorus of signals calling for an economic contraction.”

Freight expenditures in May, at 2.845, were down 1.08% annually and down 2.2% compared to April. “The Cass Freight Expenditures Index was signaling continued, overall pricing power for those in the marketplace who move freight,” wrote Broughton. “With demand no longer exceeding capacity in most modes of transportation for several months, it is not surprising that realized pricing power has gone negative. Unfortunately, the weakness in spot market pricing (especially in trucking) and the decline in fuel prices, suggests that realized pricing will be under increasing amounts of pressure and is at risk of staying negative through the end of the year.”

Broughton added that concerns about inflation are being replaced by concerns about contract pricing and cancellation of transportation equipment orders, citing four factors:

1. Almost all modes of transportation used their pricing power to create capacity, which first dampened and have now killed pricing power;

2. Spot pricing (not including fuel surcharge) in all three modes of truckload freight (dry van, reefer, and flatbed) has been falling for eleven months. Spot pricing, using dry van as a proxy, has fallen 25.8% from its peak in June 2018 and is now 30.0% below contract pricing (which we see as unsustainable);

3. The cost of fuel (and resulting fuel surcharge) is included in the Cass Expenditures Index. Since the cost of diesel has gone negative (down -2.0% in May, down -5.5% in the most recent week), it will increase the negative amount of pricing reported;

4. Whether driven by capacity addition/creation or lower fuel surcharges (or a combination of both, which is our best guess) the Expenditures Index has sequentially declined; the May 2019 Index is down -4.8% from its peak in September 2018.

This adds industry-wide data to the warning signals from earnings reports by trucking companies and railroads – including J.B. Hunt, YRC Worldwide, and BNSF Railway; shipment volumes are declining, but companies are trying to maintain their revenues by hiking freight rates, and now freight rates that had skyrocketed last year have also come under pressure. But the comparisons are with the phenomenal outlier-boom-year that was 2018 for the transportation sector, and particularly with May 2018, which had been the peak of that shipments boom.

There is a glaring dichotomy in the market. DAT Solutions, the largest truckload freight marketplace in the US, reported that average contract rates for dry vans have fallen 6.7% in May from their peak last July, and 2.6% year-over-year, to $2.23 a mile. Contract rates mostly apply to larger trucking companies with large clients with which they have long-term contracts.

For smaller truckers that rely on the spot market for loads, average spot rates, according to DAT, have plunged 17% year-over-year and 23% from the peak in June to $1.79 a mile. These spot rates put smaller trucking companies into a squeeze. As Craig Fuller, CEO at FreightWaves, wrote in an editorial about the divergence currently in the market: “Many fleets are just fighting for survival.”

"We have become increasingly convinced that freight is likely to remain weak through 2019 followed by falling truckload and intermodal contract rates in 2020," the UBS analyst Thomas Wadewitz wrote to investors in a June 18 note. Trucking's biggest companies have been slashing their outlooks. Knight-Swift and Schneider both cut their annual outlooks earlier this year.

Experts have also pointed to increasing uncertainty with tariffs, as President Donald Trump has threatened tariffs of 25% on some $200 billion of goods from China. "Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term," Alan Graf, FedEx's chief financial officer and executive vice president, said in a December report. A study by economists at the Federal Reserve, Princeton University, and Columbia University said the trade war is costing US consumers more than $1 billion a month.

These negative views are not universally shared. While GDP may not meet 2018’s strong robust levels, Bob Costello, chief economist and senior vice-president at ATA made it clear that key economic fundamentals remain firmly intact. These fundamentals include things like still strong consumer activity, as well as a solid job market. Addressing the latter, he said that there are currently more job openings than there are unemployed people, which “does not usually happen.” What’s more, he raised the question of what happens when full employment is reached, as it relates to wages. And the short answer was that wages go up, which obviously continues to support economic growth and freight activity.

"It's not that 2019 has been so bad," the Cowen analyst Jason Seidl wrote in a recent note to investors. "2018 was just really, really good."

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