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Chevin Fleet Trucking Industry Braces for Freight Recession As inflation continues to rise and the economy slows, experts believe the trucking industry is finally winding down from its pandemic boom. Recently, many trucking companies have been forced to raise prices and cut back on services as freight demand has begun to soften. The American Trucking Association has also confirmed that the 2021 driver shortage has capped at 80,000 drivers and experts say the industry needs at least 160,000 drivers by 2030 to keep up with freight demand. Add in the effects of the pandemic and the supply chain crisis, and many trucking companies are facing an uncertain future. The industry is already feeling the effects of the slowdown, with truck orders falling sharply in recent months and new truck sales expected to drop by double digits in 2021. For many, these are all signs that the trucking industry is heading for a freight recession, which could have major implications for the US economy. Some experts believe that the trucking industry is already in a recession. A recession is defined as two consecutive quarters of negative economic growth. When it comes to the trucking industry, a recession is typically characterised by a sharp drop in freight demand and trucking activity. This has been the case in recent months, with prices of big rigs (used) slumping 20% cheaper than in previous years. Global disruptions also caused the supply chains to disarray, with port congestion, logistics challenges, and product shortages hampering business operations everywhere. The Bank of America has been sounding the alarm on a freight recession as early as April 2022. In a Freight Recession, fewer freight moves because companies have too much inventory, are cutting back on production, or both. This lack of activity subsequently weakens demand for trucking services, leading carriers to reduce capacity (by idling trucks and/or laying off drivers) and further reducing freight activity. The trucking industry has been through twelve major freight recessions since 1972, twice as many as the overall economy. If the experts are to be believed, we may be heading for another soon. Understanding The Freight Recession While there is no one definitive indicator of an oncoming freight recession, there are a few key indicators that tend to precede a drop in demand. In today's trucking industry, there are three signs that economists consider signs of recession: Rising truck prices: This is a crucial indicator of a declining industry. Trucking companies struggling to move freight often resort to price increases to compensate for lost revenue. In recent months, the industry has seen truck prices rising sharply as the supply of used trucks has dried up and demand has begun to soften. Lower Consumer Demand: Another key indicator of a recession is lower consumer demand and inflation. The trucking industry manifests this in lower freight volumes and empty trucks returning from their runs. It has been the case in recent months. Higher inflation has also caused many logistic markets to take a severe downturn, exacerbating the effects of the recession. Falling Freight Volumes: This is perhaps the most obvious sign that a recession is on the horizon. When freight volumes fall, it's usually a sign that companies are cutting back on production or inventory levels are too high. Since early this year, trucking activity has been falling sharply. In the face of a potential recession, many trucking businesses are taking steps to protect themselves. These include: Cutting back on capacity: One of the most common ways trucking companies prepare for a recession is by cutting back on capacity. This often takes the form of idling trucks and laying off drivers. In some cases, trucking companies even go as far as selling their equipment. Reducing expenses: Trucking businesses prepare for a recession by reducing their expenditures. These include anything from cutting back on maintenance to reducing staff levels. Adjusting their business model: In some cases, trucking companies adapt their business model to weather the storm. It involves switching to a less-than-truckload (LTL) model to focus on e-commerce shipments. Signs of an Incoming Freight Recession How Businesses Are Bracing for a Freight Recession Some companies in the trucking industry have also turned to technology to streamline and find efficient ways to stay afloat during a freight recession. For example, many businesses have started investing in fleet management solutions to help them reduce costs and improve efficiency. This software can help trucking companies track their vehicles, schedule maintenance, and even plan routes. Using these tools, trucking businesses can reduce their trucks' time on the road and save money on fuel costs. In the end, the key to surviving a freight recession is to be prepared. Trucking businesses can weather the storm and leave the other side unscathed by understanding the signs of a recession and taking steps to reduce expenses. While a freight recession can be brutal for the trucking industry, it's important to remember that there is light at the end of the tunnel. After all, recessions don't last forever, and eventually, the trucking industry will rebound. Until then, it's essential to stay strong and weather the storm. Links/Sources: https://www.chevinfleet.com/ https://www.marketplace.org/2022/07/05/the-trucking-industry-is-coming-down-from-its- pandemic-boom/ https://www.trucking.org/sites/default/files/2021- 10/ATA%20Driver%20Shortage%20Report%202021%20Executive%20Summary.FINAL_.pdf https://www.barrons.com/articles/trucking-industry-is-in-a-recession-will-economy-follow- 51565880739 https://www.freightwaves.com/news/bank-of-america-is-sounding-the-alarm-on-collapsing- freight-demand https://www.forbes.com/sites/forbestechcouncil/2022/03/30/a-forecast-of-the-trucking-crisis- as-we-head-into-2022/?sh=7d9eaf2c4475 Light at the End of the Tunnel
