Probably to no great surprise to attendees in the room, American Trucking Associations’ Chief Economist Bob Costello painted a very positive picture of the current and near-term freight environment during the ATA’s 2nd Annual Economic Summit last week in Washington, DC.
Costello did caution, however, that a slowdown from the record high levels is coming and that “year-over-year comps are going to get tough.” He also pointed out that some segments, such as refrigerated, may have already peaked.
“Not everybody in our industry is participating [in the record high levels of freight],” Costello noted. “Some of these [segments[ are already starting to see tough year-over-year comps. Refrigerated had a better 2017.”
Costello walked through many of the key numbers for the industry, and offered a general outlook heading into 2019, including about 3 ½% GDP growth in the third quarter and 3% in the fourth quarter.
“You can clearly see the nice ramp-up in freight starting last spring and continuing through today,” Costello said, pointing to truckload dry van load growth, which is up 7.2% year-to-date. Overall, all truckload loads are up 5.4% year-to-date. By comparison, for all of 2017, the numbers were 2.1% and 3%, respectively, before ramping up in the fourth quarter to 6.4% and 6%, respectively.
For-hire truckload temperature-controlled loads, though, are down 8.8% year-to-date, and flatbed (6.1) and tank truck (3.9%) are also down.
As loads have increased, miles have also increased, but they continue to trend downward since 2010 on a seasonally adjusted basis. In 2012, the total truckload miles index peaked at just over 105, but with some dips and rises, the Index is now down to around 100 – the level it was at in 2010.
Length of haul has continually decreased during this time as well and for the first time dropped below 500 miles this year. In fact, Costello pointed out, the average length of haul has been below 500 miles in four out of the seven months this year.
“Why is that?” Costello asked. “It’s the changing supply chain” as online sales continue to grow and necessitate distribution centers closer to final destinations.
Revenue on the truckload side continues to hum along, up 20% year-over-year, the economist said.
Turning to the less-than-truckload (LTL) business, Costello said that tonnage continues to climb, up 3.9% year-to-date – again driven in part by e-commerce. Costello is predicting a 3.8% growth in LTL tonnage in the fourth quarter. This follows LTL growth of just 1.7% in 2016 and 1% in 2017.
LTL revenue is also up about 20% on the year.
“The demand side is good,” Costello said, “[but] to me, the real story in the industry is what is going on on the supply side.”
Led by high rates and record Class 8 truck sales, many shippers are wondering where is the capacity?
“[Shippers] want to know when the [tight capacity] cycle is going to end, and they read how many trucks fleets are buying and believe it is coming to an end,” Costello said. “What truck sales don’t tell us what you are doing with capacity.”
What Costello can say for certainty, though, is that the average age of the nation’s fleet is dropping – indicating continued replacement of older vehicles – and high rates of used vehicles being exported. The average age of a truck on U.S. highways is now just under 6 years old, he said, which is at the 20-year norm. But, the used market is not getting as flooded with vehicles as expected, with exports of Class 8 tractors accelerating last year and up over average again this year. In 2017, 25,000 Class 8 units were exported and the industry is on pace to export some 15,000 this year. The 20-year average is 11,500.
Many of these trucks are now going to Mexico, with 25% of exported vehicles heading there in 2017 and 37% year-to-date destined for the Mexica market. Another 19% were sent to Vietnam in 2017.
To illustrate his point on capacity remaining tight, Costello pointed to the three-year trend in fleet size. Large fleets (more than $30 million in annual revenue) have 1 ½% fewer tractors in operation year-to-date than last year, and those numbers were 5% in both 2017 and 2016. Smaller fleets are off 0.6% this year after falling 0.2% in 2017. In 2016, small fleets gained 5.1%.
“What does that say to me?” Costello asked. “It screams driver shortage all day long. Everybody wants to grow, who wouldn’t [in this environment]?
While large fleets are down in tractor counts, they are growing in company drivers. Costello believes this is a direct correlation to the lower number of independent contractors. ICs are down 3.9% year-over-year while company drivers are up 3.6%. This could be, Costello thinks, do to the backlog of new vehicles (most OEMs face order backlogs of 9 months or more) and ICs needing new equipment and not able to get it, choosing instead to become a company driver.
On the pricing front, Costello said that truckload revenue per mile is “at the highest point we’ve ever seen,” up nearly 20% year-over-year.
Dry van is up 18.5% year-to-date with short haul (less than 500 miles) up 18.2%. LTL is up 6.5%.