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September 26, 2019 3:15 PM, EDT

ATA’s Costello Optimistic About Trucking Industry Economy, With One Exception

Bob Costello Bob Costello by Jaclyn O'Laughlin

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WASHINGTON — The spot market is suffering a decline in activity this year, but contract business and the promise of improving trade negotiations between the United States and China are helping to keep the freight market on steady ground, said the chief economist of American Trucking Associations.

“We’re at high levels of freight,” said Bob Costello at the annual ATA Economic Summit, held Sept. 23. “It’s solid.”

However, he noted that the spot market’s declines after the past two years’ booms are impacting the industry. “The spot market was growing really strong in 2017 and 2018 and now it’s negative,” he said. “When you compare it to the last couple of years, it’s off 50%. This is where the freight recession resides, on the truckload side.”

He noted that while the spot market is a relatively small segment of the trucking industry, the decline is hard on companies that rely heavily on that business.

“Those fleets that play primarily in that sandbox, they’ve got to be hurting,” Costello said. “This is where we’ll see a shakeout. If you take in account wages that have increased, insurance costs and what’s going on with volumes, rates, they’ve got to be hurting.”

On the flip side, Costello said contract business has remained relatively healthy this year. While there has been a decline in prices, the dip is far less than what’s taken place on the spot market, he said.

Mark Mathews

Mark Mathews by Jaclyn O'Laughln

Mark Mathews, vice president of research development and industry analysis for the National Retail Federation, said consumer goods, along with food and beverages, are keeping trucks full.

“We had a super strong peak season last year and it’s always hard to replicate that growth, but the consumer is strong,” Mathews said.

However, the manufacturing sector of the economy is slowing a bit; according to the National Association of Manufacturers, activity is down 0.4% year-over-year through August.

Longer term, Costello warned that the softening economic environment is taking a toll on trucking firms.

“There’s a lot of evidence a lot of fleets went out of business during the first half of the year and a lot of these fleets will feel more pressure and go out of business,” he said.

According to data from Broughton Capital, in the first half of 2019, 640 freight companies closed — each with an average of about 30 drivers — which effectively removed about 20,075 trucks from the road. Compare that to the first half of 2018 when 175 companies closed — each averaging about nine drivers — taking 1,550 trucks off the road. For all of 2018, 310 trucking companies closed.

Looking longer term, Costello stopped short of saying the country is headed into a steep downturn, and expressed optimism for a strengthening in the economy.

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“None of us today were predicting a recession,” Costello said, referencing the views of others at the event, and noted that trucking could be poised for another period of strong growth if the U.S. and China work out their trade differences — especially when it comes to reducing or removing tariffs, which some economists believe has slowed economic growth.

“If we get the trade stuff figured out, you might see a return to above-trend growth,” he said. “When we get to the back end of this it’s going to be as good as it was in 2018, maybe better. But we just need to get there.”