Home Business Correction or Recession: Truck Industry Sees Slowing As The Year Ends

Correction or Recession: Truck Industry Sees Slowing As The Year Ends

by Punjabi Trucking

Amid continued uncertainty about tariffs and a tumbling stock market, it’s not surprising that an index measuring market conditions for trucking companies reports a second consecutive month of steep declines and the lowest reading since August 2017. According to freight transportation intelligence provider FTR, orders for new Class-8 trucks have dipped significantly in recent months with November’s number of 27,500 by far the lowest of the year.

Not only are truck orders down, but leading trucking industry stocks have also plummeted with shares dropping more than 25% since September for leading companies such as Knight-Swift Transportation, down 27%, J.B. Hunt Transportation Service, down 26% and Landstar System, also down 26%. Most Wall Street analysts believe the market is currently experiencing a correction with a possible economic slowdown looming in 2019.

“Market valuations for most trucking and logistics stocks have been correcting,” said Matthew Young, an equity analyst at Morningstar, a Chicago based investment research firm. “It’s become more obvious that freight demand and pricing gains will slow meaningfully in 2019,” he predicted.

What had been a white-hot market with massive retail demand and favorable prices has seen consecutive months of slowing. Department of Transportation figures indicates the growth rate for U.S. truck tonnage shipped slowed from 10.1% in June to 5.2% in August. Not coincidentally, these drops correspond with the U.S.-China trade war which the Trump Administration initiated at the beginning of summer. Tariffs, combined with a cyclical slowdown and declining oil prices, have all created lower freight prices.

“Lower levels of demand combined with declining oil/fuel prices are beginning to take their toll on trucking industry pricing power,” said Nicholas Colas, co-founder of DataTrek Research. Indeed, oil prices have slipped with West Texas Intermediate crude oil down nearly 40% from its four year high of $76.90 a barrel in October. Although cheaper oil helps truckers with costs, slowing tonnage demands can be a serious long-term challenge.

Fortunately, truck makers are not in any trouble yet with truck orders reaching nearly 500,000 since last November, leading to persistent backlogs which extend well into 2019. Truck manufacturers are running at high capacity with an annual rate of 320,000 new trucks being built despite the major downturn in November. While some companies are seeing cancellations, they are nowhere near the depths reached in 2016 at the height of the most recent transportation recession. Truckers, however, are leery of the over-capacity which can be generated during economic booms.  

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