There was a whole lot of high-powered bet-hedging going on Monday morning at the SMC3 summer meeting in Colorado Springs, Colorado, as four top executives expressed optimism about the second half of the year, but sprinkled their bullishness with more than a few caveats.
None of the panelists – two CEOs of less-than-truckload (LTL) carriers, the CEO of the nation’s largest brokerage and the president and COO of a truckload carrier, didn’t try to sugarcoat the current mediocre state of affairs across trucking. Truckload demand is off, and as a result the spill-over effect of truckload traffic to LTL seen during the high-demand days of 2018 has disappeared. When truckload sneezes, the much-smaller LTL category catches cold, and the decline in LTL tonnage and average weight per shipment so far this year is evidence of that.
Darren Hawkins, CEO of LTL carrier YRC Worldwide, Inc. (NASDAQ:YRCW), mused on how his segment could go from turning away business at this time last year to reporting negative tonnage in the second quarter. Hawkins added, however, that the tough comparisons over 2018 levels make the softness in 2019 appear worse than it actually is. Comparing the current market to 2016, a period of elevated election year uncertainty and somewhat-weak industrial activity, Hawkins said YRC is not in crisis mode but in a period of muted demand.
Rob Estes, president and CEO of privately held LTL carrier Estes Express Lines, said his company’s systemwide traffic is flat year-over-year, with some markets down significantly and others up strongly. The growth in U.S. Gross Domestic Product isn’t touching the freight market, Estes said. “The GDP increase is in things we don’t handle,” he said. “It has to be solid.”
Despite the demand softness, LTL pricing remains steady to firm because it is already a consolidated segment– the top 10 carriers control most of the shipments – high barriers to entry because of the complexity of their networks and sustained pricing discipline. The same cannot be said for the fragmented and low-barrier truckload segment, where a deluge of smaller truckers poured onto the roads last year in anticipation of a durable demand picture that didn’t materialize. Bob Biesterfield, CEO of C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), the country’s largest broker and large third-party logistics provider, said the company added 20,000 truckers to its database last year, its most ever. The fleet size of the average new entrant was 1.6 trucks, Biesterfield said.
Still, whether for public spin or because of natural baked-in optimism, the panelists said the second half of 2019 will probably be brighter than the first half. Employment and consumer spending remain strong, and interest rates remain low and may actually go lower. “The worst is behind us,” said Dav Van Alstine, president and chief operating officer of truckload carrier Ruan Transportation Management Systems. Hawkins and Estes said they see great potential in final-mile delivery services, with Dawkins saying that YRC is jumping in with both feet through partnerships with final-mile services.
Another point of progress is that technology will advance to the point where it can better match the location of the freight with an appropriate vehicle, thus better utilizing the large amount of unused capacity on the roads. Today, 20 percent of small carriers drive empty miles, while 10 percent of large carriers do.
One point of consensus is that the trade battle with China needs to be resolved, and secondarily some clarity on trade relations with Mexico are critical for businesses to shake off uncertainty and resume normal investment. “There is no question that our customer base is experiencing confusion over the trade landscape,” said Biesterfield, whose company is a big non-vessel operating common carrier (NVOCC) on the U.S.-China trade lane. That’s a negative impact on global trade.”