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Truckers sound the alarm as shipping companies hit the skids

Business Insider logoBusiness Insider 2019-06-19 Rachel Premack

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This year has been rocky for the $800 billion trucking industry. 

After a raucous 2018, 2019 has seen retailers and manufacturers moving less, according to the Cass Freight Index. Freight rates have dipped year over year for six months straight. Loads on the spot market, in which retailers and manufacturers buy trucking capacity as they need it rather than through a contract, have fallen by a chilling 62.6% in May year over year.

And that means rates have dipped for independent truckers as well as major companies. Rates for van loads sank 20% in May year over year, according to DAT.

The earnings of big and small players alike are getting hit as factory activity continues to decline. The Lexington, Ky., owner-operator Chad Boblett said some truck drivers are seeing a "bloodbath." 

a close up of a map© Cass Freight Index, Andy Kiersz/Business Insider

There has been a spate of trucking companies declaring bankruptcy this year, too. The largest was New England Motor Freight, which was No. 19 in its trucking segment. Falcon Transport also shut down this year, abruptly laying off some 550 employees in April.

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"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.

Even giants like FedEx, UPS, and J.B. Hunt, the country's third-largest trucking company, haven't been immune. UPS's first-quarter bottom line was below last year's revenue, and the package giant's earnings were below expectations. 

Meanwhile, UBS dropped its rating of J.B. Hunt from "Buy" to "Neutral" on June 18, citing "an environment in which pricing declines and freight remains weak." Bank of America Merrill Lynch lowered its price objective and cut J.B. Hunt's rating last month for similar reasons.

Tariffs are hitting America's trucking industry

Bad weather was to blame for some of this year's trucking downturns, and 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. In February, international air freight sank to a three-year low.

"I think the data that we've seen is that China in February, not only because of Chinese New Year but because of the potential tariffs that were supposed to go in in March 1," Terrence Matthews, an executive vice president at J.B. Hunt, said. "Goods shipped, I think, is down 20%-plus now to see that land into a much slower West Coast volume."

FedEx also had to slash its outlook because of global trade issues.

"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 2018 report. "These trends, coupled with the change in service mix at FedEx Express, are negatively impacting the segment's financial results."

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 per month.

The R-word

But some insiders are still hesitant to label what's going on as a freight recession -- preferring to label the market as "soft" and opinions as "uncertain."

At a conference, the Credit Suisse analyst Allison Landry told The Wall Street Journal last month, "the common phrases I heard over and over were, 'We're going to wait and see what happens' and 'I hope we don't talk ourselves into a recession.'"

And some are writing off what's happening as a trough altogether.

"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."

Read more: New truck orders plunged by 43% in December

Trucking is regardless a key area for folks to watch -- whether it's a bloodbath or just a little shaky. A dip in truck orders, for example, is a sign that manufacturers and retailers anticipate that they'll be moving less stuff. That means they're planning on scaling back on producing, selling, and other business activities.

"Because trucking participates in all phases of manufacturing, it increases as manufacturing starts to ramp up, giving it leading indication on economic growth," Steve Tam, the vice president at ACT Research, told Business Insider.

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