To underscore the fragile state of trucking, FreightWaves CEO Craig Fuller pointed to a development from this past weekend — a small Iowa bank that appeared to be overly exposed to commercial trucking and was taken over by regulators.
“The [Federal Deposit Insurance Corp.] saw that it was underwater on its loans and seized it because it was insolvent,” Fuller related to FreightWaves market analyst Zach Strickland during a State of Freight session at the second annual F3: Future of Freight Festival in Chattanooga, Tennessee, on Tuesday.
“The average person, and the Federal Reserve to an extent, focuses a lot on the jobs aspect when measuring the economy,” Fuller said. “But what actually drives economic activity is the amount of money that’s in the system — liquidity. And when you start having banks fail, or when their ability to lend credit starts to seize up, that’s what actually slows the economy down. These are scary situations, because there are other banks with that kind of exposure to other industries that are facing this.”
Fuller and Strickland noted that during much of 2023, forecasts from the trucking industry — at least from many of the larger public companies — reflected the relatively strong data points used by economists to measure the health of the economy, such as 4.9% GDP growth and low unemployment.
However, “that data suggests that the market isn’t as dire as what it actually feels like to a lot of the carriers in the market,” Fuller said. “J.B. Hunt had been talking about green shoots they were seeing in August, but if you look at their most recent earnings call, they’ve largely taken that off the table. We’re hearing from all the public carriers and the private ones that there’s been a significant deterioration in October.”
In addition, buildup in truck capacity and new entrants into the market over the last two years continues to linger, “and that is what’s also keeping the market really painful, regardless of what GDP or volume data suggests how the trucking market should otherwise be doing.”
Using FreightWaves SONAR freight tender and rejection data to underpin forecasts, Fuller doesn’t see spot rates dropping much further than where they stand now — but they could drag at those levels for a while.
“Possibly marginal deterioration, maybe another 4 to 5 cents [per mile] in the first quarter next year,” he said.
“But they’re not going to get much lower than that, because carriers are simply underwater. And when they’re underwater they have a choice. They can either leave the industry entirely or they can continue to run just for enough cash flow. A lot of carriers can operate at a loss for a while and hope the market will return.”
Brokers will feel the heat
With the fall of a handful of big-name brokers over the last several months — Convoy being the most notable — Fuller reflected on how they’ve been able to thrive as well as what they could be facing in the months to come.
“It used to be that brokers were considered an alternative and didn’t get the primary positions for shippers’ freight,” he said. “But over the last 10 years, we’ve seen a shift where freight brokers are playing a primary role in carrier routing guides. Now they’re providing continuous lines of demand that have enabled carriers to get additional cash flow and load opportunities, and that’s why I think a lot of carriers are holding on a lot longer right now than in past downturns.”
However, because contract rates in the coming months could take another hit over the next two quarters, brokers could be in for more of a shock, Fuller believes.
“Freight brokers get squeezed when that spot rate comes up and the contract rate stays flat or comes down. And if we believe the contract rate is going to go down a few percent next year and the spot rates are going to increase, we will see margin compression. That’s when a lot of brokers will feel substantial pain, because they won’t get the strong spreads that they have been getting.
“I think there are more closures coming, and when that happens it’s going to be challenging.”
Supa Goat
Speaking of foreigners it’s way easier for them to get a loan get their own truck work with a fleet company to where me as an American can’t even get job due to not enough experience or whatever the case may be but if I had my own truck which I can’t get because of either not enough credit or money but have a truck with no experience when all I want to do is make an honest living to support my family financially which is an American dream anyone would want but can’t afford to live that American dream but a foreigner can with no experience and some credit it gets better to insurance companies make it even harder for the trucking companies to hire people yes other people make it harder for others to the point that they don’t want to pay or give a person a chance to show their worth
Pawel Piotrowski
Just sitting home waiting for bankruptcies. Then I’ll drive again.
Steven Manson
As it stands now the AVERAGE truck driver earns about $23/hr for hours LOOGED FOR WORK. If it gets any lower I’m going to work 2 jobs at fast food and earn the same amount for the same hours worked but be home a LOT more
Stephen webster
I am seeing more India biased brokers that work with smaller trucking companies under 500 trucks in size
Non profit huron EasyShare pushed to change the rules take it harder for foreign workers to come to Canada to drive trucks of all sizes and for 10 paid sick days a year
This was because too many foreign drivers that do cross border trips were not being provided medical care or transport back as many trucking companies in Canada are in financial condition that is not good. I understand that over 10,000 power units and trailers are parked and for sale in Canada
In ont it is worse than 2008 with many construction workers also without work
I live in a tent encampment with many families of foreign laid off workers including truck drivers.
Heathen
It’s not very hard to predict that rates will drop in january. It has dropped in the first quarter every single year. Normally the rates come back up in late March to early april. Meanwhile, contract rates are fine. The volatility is in the spot market, because all these rookie lease operators got a PPP Loan in 2020, ditched their lease, and went out and bought trucks. 1099 brokers did the same thing, getting their own broker mc and opening brokerages, seeing $6 pet mile and thinking they could keep $2 of that, and this was normal. They don’t know the lanes, they don’t know how the spot Market works, or what it’s even there for. That’s the only real problem. Far too many trucks running solely off the DAT board, with no contract freight, and too many new brokers using those rookies to drive down rates. We already had a 90% failure rate for trucks running primarily spot Market. When you get 50k rookies into the spot, seeting $3 – $4 per mile in 20, thinking that’s normal, ignoring all of us saying it won’t hold, and taking on a half million in debt; this is where we are.
Pick up contract freight or lease on to a good contract company until the market equalizes from the bubble. Let the 60% brokers go under, and rates will normalize by August of next year.
John
It is said freight brokerages are both evil and good.
It’s not about the driver or the government dropping money into bad transportation management. AKA Yellow.
Carriers should focus on their safer status of safety and work closely with stable brokers who offer either no fee quick pay or low percentage quick pay. “Remember if the rate is not what you need” you have to ability to reject the load tender.
Gary Murphy
I believe that a good strike would put us back on demand I’m not Rich and at the moment barley getting by a person can earn money money today working for McDonald’s rather than driving a truck. I’d my self would be more willing to participate in a strike that would help with the increase of the freight rate. But it would take the entire trucking industry to get onboard with this you have theses companies like night/Swift , Werner, then they are the foreigner in which 90% of them speak no English. It would take everyone to form a strike , we can get other Jobs to hold us through the strike and actually see a better income for us to feed our families with.
Johnny Freight
this countree needs brokers. when 9/11 happened brokers were the ones keepin this country alive. govermint needs to step in and bail out brokerages