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October 17, 2019 2:15 PM, EDT

Trucking Relies on Consumers, but Recession Fears Loom, Experts Say

Trailer market Eric Starks, chairman and CEO of Freight Transportation Research, speaks about the trailer market. (Roger Gilroy/Transport Topics)

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PALM BEACH, Fla. — A leading consultant and top executives at three fleets outlined the state of the trucking industry and overall economy to trailer dealers and suppliers during a meeting here, with discussion focused on changing conditions and persistent concerns about softening demand.

While consumer activity remains strong — as it has in recent years — there remains ongoing talk of a looming recession, said Eric Starks, chairman and CEO of Freight Transportation Research.

“A concern is what if the consumer finally says ‘I’m out,’ ” he said. “That’s when we start seeing higher risks of recession. But we are not seeing that at the moment.”

To maintain that momentum, economic activity must remain steady, he noted. “Somewhere between 180,000 to 200,000 [new] jobs are needed every month to see just 2% to 2.5% [GDP growth],” he said. “So we have to figure out where we are going to get workers, or radically increase productivity.”

Starks and the trucking executives spoke Oct. 10 during the National Trailer Dealers Association’s 29th Annual Meeting, which drew a record 820 attendees.

Hawkins

Hawkins

Darren Hawkins, CEO of YRC Worldwide Inc., said the less-than-truckload sector has seen 10 months of negative tonnage as an industry, mirroring the trucking industry’s overall downswing versus last year’s highs.

“Certainly, my company has followed those trends,” he said. YRC has more than 250,000 customers, mostly aligned with the industrial side.

“You would think that we are at the bottom of the dip, but I can’t predict that,” he said. “The other odd piece for us is we are going into a presidential election year. If you look at the last four, from an LTL perspective, it wasn’t a great year for tonnage just because of the uncertainty around the election.”

David Parker, chairman and CEO of Covenant Transport Services, noted that truck capacity has left the market in 2019.

“Through the second quarter of this year compared with last year, there have been 17,000 trucking companies that have not renewed their operating authority,” he said, citing insurance industry data.

In fact, insurance costs tied to tort law and costly jury verdicts are a topmost concern for Harold Sumerford, CEO of J&M Tank Lines Inc.

“Something has to happen. Insurance rates are going up 20% or 30%,” he said. “There are truckers in Louisiana — I found out firsthand the other day — they are paying over $25,000 per truck. They are out of business, but just don’t know it.”

Sumerford also expressed frustration over Congress’ inability to deliver a long-term solution to diminishing fuel tax revenue for the Highway Trust Fund, the main federal program for infrastructure investments.

“The fuel tax is the most efficient way to collect a tax [to replenish the Highway Trust Fund].” Sumerford said. “We are saying ‘tax us’, and they won’t do it. It’s very aggravating.”

Trailer Orders

Sumerford

“If we don’t take action immediately, the Highway Trust Fund will actually be insolvent by 2021,” Hawkins added.

Meanwhile, U.S. net trailer orders overall, from a seasonal perspective, went below the five-year average from March through August, after matching the average in January and February, Starks said.

Overall build rates remain above the seasonal five-year average and are higher than 2018 levels, he said. “A high build rate while orders have come down is what gives people heartburn,” he said.

Flatbeds are the hardest-hit, he added, as both orders and build rates are falling. “What’s crazy is how much of an impact the oil fields have on this particular market. This is a market that will continue to ease back into next year,” he said.

Meanwhile, new equipment is needed.

“I need to replace another third of my trailer fleet,” Hawkins said. “So regardless of what is happening in the economy we will continue to acquire trailers and tractors. I get a nice return on them, especially from a maintenance standpoint. But it will be a decelerated pace depending on how I see tonnage,” Hawkins said.

YRC has 15,000 tractors and 45,000 trailers, and over the past four years it acquired 15,000 trailers, pups and vans, he said.

Covenant runs its tractors between 22 months and 25 months, Parker said, and stays within that range regardless of market conditions. It keeps refrigerated vans for seven years and dry vans for 10 years. “Whether we grow our company or not, there [are] always going to be equipment needs,” he said.

Sumerford said he was looking at buying 20 to 30 “mostly specialized tanks” next year.

Starks said trailer production will peak at 325,000 this year and ease back to 274,000 in 2020.

“The problem is that 2018 was so crazy that it has disrupted how we view the market and assess where we are. Right now we are still on offense, we are not playing defense. But the game is getting tighter.”

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