Trucking Recession 2023? What Truckers Need to Know
As we settle into Q2 of 2023, industry insiders, analysts, and truckers looking for loads all say the same thing: it’s a gloomy time for trucking.
Slow retail sales and lower factory demand are having a domino effect across the freight industry. Truck company owners and everyone in the trucking industry are likely feeling the pinch as companies jockey for fewer loads. And now Industry leaders are confirming what we are all feeling. After major freight companies revealed Q1 earnings, poor industry conditions are being laid bare, and the situation is now described by many as a “Trucking Recession” or “Freight Recession.”
Let’s discuss what truck company owners need to know about what’s causing this trucking or freight recession, and a few important tips to help navigate your trucking company through to the next up cycle.
What’s causing this trucking recession of 2023?
A recession in one sector of the industry, such as ocean freight, generally ripples through industry-wide creating an overall decline in the 2023 economic activity. In this particular case, several sectors of the industry have been impacted by significant declines at the same time…and this is hitting the trucking sector hard!
In basic terms, here’s how the situation is playing out:
- Demand for all sorts of consumer goods is falling as the cost-of-living rises.
- This is leading to U.S. manufacturing orders decreasing.
- Meanwhile, imported goods from China fell by 40% this past winter. So, fewer cargo ships are arriving in U.S. ports than usual.
- More Truckers are now forced to bid on fewer loads.
In response to all of this, big players in the freight industry have sounded the alarm. In a shareholders call in April, JB Hunt executives reported a 17% drop in revenue per truckload in the last financial quarter due to low demand.
“Simply stated, we’re in a freight recession,” said a company executive. Other major players like UPS have also announced declining earnings due to diving retail demand.
If there’s still any doubt that this is providing recessionary signs, the freight market’s condition is also mirroring the broader economy. For example, the Federal Reserve Bank of New York puts the probability of a general recession at more than 57 percent, the highest likelihood since the 1980s.
Declining ocean freight is bad news for trucking
A big piece of the puzzle is a significant decline in seaport traffic. Ocean freight orders are down 50% year over year impacting both rail and road transportation.
CNBC pointed to data from The Port of New York and New Jersey, which reported that the rate of container-handling for 20-foot equivalent units (TEUs) dropped from around 862,000 TEUs in March 2022 to about 575,000 TEUs in March 2023. On the other side of the country, the Port of Los Angeles handled around 960,000 TEUs in March 2022, dropping to about 623,000 TEUs in March 2023.
The decline in transportation of goods from seaports and throughout the supply chain is expected to continue as consumer spending is forecast to drop at a 0.5% annualized rate in the second and third quarters of 2023. Less goods coming into the country means less loads to transport.
Spot rates hit hardest
Freight rates have dropped across the board, with declines well into the double digits in every major shipping category:
- Flatbed rates are 6% lower YoY.
- Van rates are estimated to be 1% lower YoY
- Reefer rates are at 3% lower YoY
But spot rates have been hit the hardest. For well over a year, spot rates have been plummeting across the USA. Some industry analysts peg spot rates nearly 70% lower this March compared to March 2022.
And this trend is being intensified by a crowded industry. A surge in the number of new truck companies coming into operation took place during the short-lived post-COVID economic recovery. An oversaturation of trucking companies in operation means even more competition for lower paying loads.
What’s going down with diesel prices?
Fueling up might be one of the few nice surprises during these tough times as diesel prices are going down.
According to the U.S. Energy Information Administration, the latest posting on April 1, 2023 is $4.018 a gallon, the lowest price since a record posting of over $5.50 a gallon on Feb. 28, 2022.
The post-pandemic economy recovery and Russia’s invasion of Ukraine contributed to a spike in the cost of diesel last year. Today, lower demand is bringing diesel prices back down – some good news amidst the gloom.
How are truckers adapting?
A purge in trucking has been predicted since the start of 2022 when inflation and rising interest rates brought an end to the post pandemic economic recovery. As a result, a natural correction is occurring, as weaker operators are squeezed out of the market. Savvy truck company owners must be prepared to ride through lean times and remain financially stable to make it through to the next trucking up cycle.
The reality is there is no silver bullet to kill off the imminent risks associated with this current trucking recession. It’ll take concerted effort to maintain financial stability, a focus on efficiencies, and hard work to come through it in good shape and ready to embrace the next upswing. But here are a few essential themes to focus on to help you successfully navigate a trucking recession:
- Controlling your company’s cash flow is essential. Having access to working capital when its needed is the key to operational success. That might mean re-evaluating your business financing strategy and the quality of service from your cash flow provider. Freight factoring is a cash flow solution designed specifically for the trucking industry. This mainstream financing strategy is a cost effective means to convert freight bills into immediate cash to create instant positive cash flow. The success of this strategy is in large part dependent on having a trusted financial partner you can count on. Look for a freight factoring company rooted in experience to provide maximum cash advances, quick funding you can count on, and responsive customer service.
- Minimize costs without compromising operational efficiency. During a downturn, cost-savers like fuel cards become even more crucial. Despite the currently trending drop in diesel prices, fuel remains the largest operating expense. Trucking companies that take advantage of substantial fuel discounts gain a competitive advantage in the market.
- Remain focused on goals and objectives during turbulent times. In good times careful planning can expedite your growth but in bad times setting realistic goals and objectives and working on them consistently can help you keep the doors open. Ensure your goal setting includes a robust load acquisition and a cost reduction strategy. Then follow through by tracking your cost-per-mile on a regular basis to ensure your company is running profitably.
- Use readily available efficiency tools. There are several effective tools available today to help you make quick and safe decisions when taking loads off load boards or new customers. Here’s a few tools to get you started:
- Be on the lookout for fraudulent practices. Recent reports reveal that fraud is on the rise. Fraud, including double brokering, jumped 400% in the fourth quarter of 2022 from the same period the year before. Take extreme caution to protect your company from bad actors.
- Be loyal to your customers! Many trucking companies that abandoned their freight contracts in 2021 to chase lucrative spot rates are still scrambling to regain the advantages of steady freight. For long term success, don’t sacrifice customer relations for short-term gain. Work hard to gain customers and provide safe, reliable service at a competitive rate. Shippers may be more cost aware than ever, but still need freight moved on time and without incident.
Is the trucking recession here? Top industry leaders are saying it is, and the stats back it up: The American Trucking Associations’ (ATA) advanced seasonally adjusted (S.A.) For-Hire Truck Tonnage Index – measuring the amount of freight hauled — fell 5.4% in March.
“March’s sequential decline was the largest monthly drop since April 2020 during the start of the pandemic,” said ATA Chief Economist Bob Costello in an April press release. “Falling home construction, decreasing factory output, and soft retail sales all hurt contract freight tonnage – which dominates ATA’s tonnage index – during the month. Despite the largest year-over-year drop since October 2020, contract freight remains more robust than the spot market, which continues to see prolonged weakness.”
The industry may be in recession, but its not like we’ve never been here before. Trucking has a volatile history of extreme highs and low lows. Experienced truck company owners know that when it comes to tough times – “nothing lasts forever!” So take concrete steps to solidify your operations, and make the most of the freight opportunities that are still available.
Keep driving and be safe.
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