While 2018 proved one of the most fruitful years for the truck driving industry, 2019 has had less-than-stellar results. Thousands of truckers have lost their jobs as we have witnessed a vicious market correction that spares no one. What stands behind this correction in an $800 billion industry? You have a few different things that have led to these problems. We have not had a market downturn since the last financial crisis of 2008.
What It Signals
If you want to check the health of an economy, look at the manufacturing profits and look at the logistics industry because this will tell you a lot about where the market might be heading. With trucking and manufacturing slowing down, this could eventually hit the economy as a whole. When the economic activity looks good, they need truckers to haul the freight, and the rates tend to rise. However, when an economic activity does poorly, we see rates fall. The rates have fallen for the last six months at a disturbing 62.6 percent.
What Could Be Behind It?
You have a few different factors that could be fueling this downward economic spiral. First, the trade war with China has certainly not helped the economy. Shipping freight has been much harder since the tariffs on Chinese goods have shifted our economy. Economic policies have led to some truckers being irate because of how this hurts their business. When consumers stop buying, they have no demand, and this has more to do with business economics than politics. The change in economic direction could also have to do with the fact that we have been in a bull market for ten years. It’s a natural part of the cycle for it to go into recession and come back, and that could be what we witness now is a natural part of the economic cycle.
What Makes the Current Market Difficult?
While those who work under a company may not be feeling the burn quite as much, the owner and operators are taking some of the most significant blows in this business. Carl Fleming, a truck driver since 1977, says that he has had a particularly difficult year in 2019. Fleming works on a freelance basis, and he says how his earnings this year have been less than $20,000. That in comparison to last year, which was a booming market for him. The problem with this type of market is that insurance and fuel costs remain the same, the profits have taken a drastic hit, which leads to some small trucking companies to going under.
While some of the small companies have drowned, more prominent companies have started to struggle. You have bigger companies that have projected profits that were drastically off the mark, and they had to give newer estimates. J.B. Hunt is one company that has talked about how they had better-than-expected earnings this year.
What Hope Do We Have?
We could be optimistic about the long-term future, but we should keep realistic expectations about the near future. We will most likely begin to experience some hard times in the coming days. Morgan Stanley, a multinational American investment bank, predicts that the trucking sector will have four percent fewer profits in the following year. It is expected that the earnings will be weak in the coming weeks.
It All Goes Back to Supply and Demand
When it comes to the economy, everything looks back on the law of supply and demand. If trucking goes into a slump, it is an indication of how the economy has shifted, and we could soon see a correction in some of the other sectors like a chain reaction. While it may not happen right away, it could be sitting on the horizon.
What Happens in a Good and Bad Economic Market?
When the trucking work remains abundant, you have an increased demand for work. As a result, trucking companies go out and buy more trucks and hire more truck drivers to rake in the profits. Eventually, this leads to overcapacity where you have a lot of trucks driving on the road to fill the demands, but ultimately, it becomes too much to sustain the demands. As a result, the market starts to shift, and companies enter into more of a survival mode. They don’t buy as many things because of the hard times. The rates for hauling freight also drop, and this leads to lower profits for companies.
How Trucking Could Be Helped Out
Some of the reasons that we may want to remain optimistic are for the fact that consumer spending remains strong. In fact, in retail, we saw a rosy outlook for 2019. The higher uptick in consumer spending could help to offset some of the dangers we face from the current trade war. Through good consumer spending, we could also see the trucking industry lifted out of its current mode of recession. Based on the gains made in wages and jobs, this could be a successful year for us.
The Numbers, Not Opinions Matter
Anyone who has invested in the stock market understands how opinion doesn’t mean anything when it comes to investing. The facts and figures point in the other direction even despite some economists saying that we currently have a booming economy. While some sectors are looking good, the canary in the coal mine is the trucking industry, and when that experiences a market correction, some of the other industries could soon follow. What does this mean for everyone? For trucking companies, it means that they should pull out the umbrella and prepare for the rainstorm. While it may not come right away, economic changes may hit at some point. It’s better to have an umbrella to weather the storm than to be caught without one. The change in the market has been known to happen without warning. In the 2008 financial crisis, few people if any saw the warning signs. They were being escorted out of the office and told they didn’t have a job anymore. That’s why it’s essential to prepare yourself for changes. Even if they don’t come, you will still be ahead of those who never made themselves.
The Cold Snap Hurt the First Quarter
One of the things that could have done some damage came from the cold weather that we experienced at the beginning of 2019. With blizzards and low temperatures across the country, transportation slowed to a standstill, and some loads were even canceled as freight rates dropped through the floor.
We go through many economic changes, and we have survived all of them, but you have to prepare for the worst. As one saying goes, the good companies survive an economic downturn. The best companies emerge even stronger from economic downturns. That’s because when you get pushed to your limits and have to survive in a less-than-favorable environment, you either sink or swim. A less favorable market will expose your weaknesses. You don’t have any other options but to survive. You will either learn new ways to drive profits, or you will fall apart in the onslaught. The current economic backdrop is quite puzzling because it looks good in some areas, but it seems less favorable in others. No one can predict the future and what it may bring, but those who prepare for the hard times could have an advantage.