Freight demand softens, second half of 2019 a ‘wild card’

Trucking freight demand was soft in April, and this is likely to continue into May amid high retail inventory levels after the late 2018 and early 2019 pull forward in freight related to tariffs, analysts said.

In a recent industry update, senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird, said Internet Truckstop’s Market Demand has fallen 39% since the start of the year, from the same period in 2018. The U.S. Consumer Confidence Index rose in April but remains lower than it was in the most recent peak in October.

The low point for truckload spot pricing has yet to come, according to Hartford and Reed. Dry van rates fell 16% in April, from the same month in 2018, according to DAT Solutions. Following weeks of declines, the rates rose for the week ending May 5 as better weather led to improved freight demand.

Contractual truckload pricing is expected to rise in the low-single digits this year, from last year, and bid season is more than halfway completed, said Hartford and Reed. But pricing growth has been slowing, and the risk remains that pricing growth could flatten or become a price decline in the second half of 2019, when compared to stronger prices in the same period in 2018. The spread has reached a recent high between contract dry van and spot pricing.

“Conversations with industry contacts confirm an aggressive spot environment, as reflected in the data, and carriers are ‘trying their best’ to hold their ground on contractual rate increases,” said Hartford and Reed, adding that the second half of 2019 “remains a wild card.” The analysts look to follow how retail inventory levels are drawn down over the summer.

Regulations in 2019 and 2020 might put a stop to price declines if pricing starts to fall in the second half of 2019, according to Hartford and Reed. After Dec. 16, 2019, full compliance of the electronic logging device (ELD) mandate is required, and motor carriers and drivers must use self-certified ELDs that are registered with the Federal Motor Carrier Safety Administration to track their hour-of-service data, according to the federal agency. Carriers and drivers with exemptions to the rule won’t be impacted by the Dec. 16 deadline. Along with the ELD mandate deadline, the federal agency on Jan. 4, 2020, will establish a Commercial Driver’s License Drug and Alcohol Clearinghouse, and the database will track drug and alcohol testing of drivers. Employers will be required to check the database before hiring a prospective driver.

“Freight remains soft, as expected, and while we see reasons for recovery in the second half of 2019, escalating trade tensions raise the risk of freight recession,” said Tim Denoyer, vice president and senior analyst for ACT Research. “Class 8 tractor retail sales are on fire, adding capacity to the market at an unfortunate time for truckers. Shippers are increasingly targeting freight cost savings, likely emboldened by attractive rates in the spot market.”

The Trucking Conditions Index (TCI) from freight transportation consultant FTR fell to its lowest reading since 2017, according to Logistics Management. In February, the most recent reading available, the index was 1.71, down from 5.79 in January and 11.46 in December. A reading above zero represents an adequate trucking environment, and readings above 10 indicate volumes, prices and margins are in a good range for carriers. The 1.71 reading in February shows the trucking market has moderated, and the index is expected to remain close to neutral throughout 2019 and 2020.

“We continue to see modest weakening in trucking conditions due to the near-term easing of freight rates and volumes, but we should remain generally above neutral during the coming year,” said Avery Vise, FTR vice president of trucking. “However, we are close enough to neutral that negative TCI readings are now a possibility.”

In a recent Transport Topics article, Noel Perry, principal and economist for Transport Futures, said while 2018 was a great year, things started to trail off by the end of the year, indicating that 2019 wouldn’t be as strong as 2018. ATA Chief Economist Bob Costello expects freight tonnage to improve in the second quarter of 2019, but he expects the 2019 rise in tonnage to be below the 6.7% increase in 2018.