Trucking demand continues to show weakness in July

Dive Brief:

Trucking demand, measured by DAT's load-to-truck ratio, was down more than 41% year-over-year (YoY) for vans, down 62% for flatbeds and down nearly 44% for reefers in July.
All three categories also experienced declines in demand from June into July.
Spot rates were also lower than a year ago. Spot rates for vans were down almost 19% YoY, flatbed rates were down almost 18% and reefer rates were down more than 15%, according to DAT data.

The van load-to-truck ratio for July was 2.09, it was 14.46 for flatbeds and 3.65 for reefers.

Matt Leonard / Supply Chain Dive, data from DAT

Dive Insight:

The slipping demand in trucking comes at a time when capacity is also on the rise, up nearly 8% from a year ago, but down 1.6% since June. These high levels of capacity and low demand, along with lower spot rates, create a market ideal for the shippers who are looking to move freight, but one where some trucking operations could struggle.

"Certainly the pendulum is swinging towards shippers in regard to rate negotiations," Kenny Vieth, president and senior analyst with ACT Research, told Supply Chain Dive.

This is happening as growth in key sectors like manufacturing and housing is slowing, creating less demand for freight. So while shippers may benefit from lower rates, the broader economy could be a problem, Vieth said.

One of the issues for truckers is the supply and demand for trucks. Freight has seen about 1% growth in 2019, but available trucks have grown by 7%, he said, which is a problem for carriers. Carriers invested in new and more trucks after they cashed their checks from the hot 2018 market, but the market didn't keep up, so now carriers have more space in their fleets in a market experiencing lower demand.

But it's also important to remember, analysts say, the trucking market is cyclical.

"And certainly there are times when things are going to be lower year-over-year," Avery Vise, the vice president of trucking research at FTR Transportation Intelligence, told Supply Chain Dive. "And we saw that in freight earlier this year, but that came off an enormously strong [20]17 and [20]18."

Vise said the forecast at FTR has the market "solidifying from this point on" going into 2020. There will be growth, but it won't be like 2018 and "it's certainly not something that would be characterized as a recession or crisis or anything like that."

Others have been more willing to use stronger language to describe what the current freight market has gone through in the last few months as the Cass Index has slipped downward since the beginning of the year and multiple trucking companies have shuttered their operations.

"I believe we were actually the first ones to call it a freight recession when all of these great metrics were negative for six months or more," Vieth said.

But at this point, the trucking companies closing up shop are mostly smaller operations. Some of these companies could have had a hard time dealing with labor costs or insurance costs associated with poor safety ratings, Vieth said.

"These are the times when the weak sheep get killed in the market," he said. But it's not a bloodbath, he said, and many trucking companies with a solid business practice will likely see the light at the end of the tunnel.

The newly announced tariffs could exacerbate what is already a tough market for carriers in the long term, but in the short term, carriers might benefit as consumer goods importers rush to beat a potential hike from 10% to 25%, Vieth said.