For-hire fleets that have increased pay to attract drivers and that haul primarily in the spot market could be the first to buckle when the next freight recession hits, according to the truckload industry’s principal economist.
Speaking at the National Shippers Strategic Transportation Council (NASSTRAC) spring conference in Washington, D.C. on June 10, American Trucking Associations (ATA) chief economist Bob Costello said while the next recession should be “fairly mild historically” for the macro economy, it could be “very hard” on the trucking industry. But smaller fleets that have increased pay over the last two years as freight rates rose will be particularly vulnerable.
“I’m already hearing of fleets that have provided pay increases – which by the way I think needed to happen, and the market dictates that – are under a lot of pressure,” Costello said.
He pointed out that while costs such as insurance also contribute to that pressure, wages are the carriers’ largest expense, and pay increases are extremely difficult to walk back. “So how do you continue to make payroll when you’re seeing spot market pricing going down? In fact, I predict a large number of trucking companies will go out of business.”
Costello said the ATA has been promoting other methods to address a shortfall in drivers, including efforts in Congress and proposals within the Trump Administration to allow those between 18 and 21 to have an interstate commercial trucking license.
“If you go to a private truck driver training school today and you look at the average age, it’s over 30. So we’re missing out on these folks that go to construction, retail and fast food industries.”
Costello also said if headway could be made in reducing driver detention time so that drivers can turn around faster, “you increase effective capacity, and drivers can haul more.”
Carriers and freight brokerages have been increasingly acknowledging the slide in truckload spot market rates, with Landstar System [NASDAQ: LSTR] recently warning of the effect that the weak spot market could have on second quarter earnings.
Costello said that before the country’s trade and tariff wars began escalating between China and Mexico this year, a freight recession was looking like a 2021 event.
However, “that forecast is at risk right now,” Costello warned. “The good news is we’re not having tariffs this morning,” referring to the agreement struck between the United States and Mexico on June 7 cancelling a planned 5 percent tariff on Mexican imports.
“But when the horizons become cloudy, the natural reaction of business is to become more cautious. All of this uncertainty around trade is going to cause businesses to stop or reduce capital expenditure spending, and hiring may come into jeopardy. I think the likelihood of having a recession before [2021] has increased as a result of this uncertainty.”
