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Trucking Outlook 2020: Trade Deals, Tariffs and Tech (Oh, My!)

At this point, making predictions for the trucking market feels almost like playing roulette. In an industry that’s widely understood to be quickly cyclical and dependent on quite literally dozens of factors, it’s almost anyone’s guess how the market will fare even a few months from now. 2018 will be remembered for having two of the best quarters for revenue in trucking’s history, but 2019 was slower, due to tariff uncertainty, excess capacity in the market and many companies holding excess inventory.

As for 2020? The evidence is difficult to interpret.

“We typically look for clues from the past 12 months that offer insight into the next 12. Those clues are less obvious this year, though, because 2019 sent a flurry of mixed signals,” says a new DAT report. “There were the negative signs: Air and sea cargo were down, railroad volumes were subpar, and manufacturing slumped. On the positive side, truckload freight increased 4 percent year over year, and the spot market grew even faster. Dry van freight volumes were especially strong. 

“2020 is going to be a very, very tough year,” says Kenny Vieth, ACT Research President. But Agforce experts aren’t so sure about that … not all of them, anyway. 

“2020 should be a better year for logistics than 2019,” says Andy Tuley, Vice President of Business Development at Agforce. “Some of the bankruptcies that have happened recently should cause capacity to return close to equal and the market should tighten. This should push rates up to a level that should help carriers with cash flows. It will allow more even distribution in the marketplace.”

Michael Preisinger, Managing Director at Agforce, believes, based on his conversations with trucking companies and customers, that “the domestic transportation market will begin to tighten in the spring. Most of what I am reading is saying the same. By spring we should have clarity around the trade agreement with China which will give companies a better idea of how to invest in their business. Also, the large number of trucking companies that have gone out of business in the last year will leave the market with less capacity as transportation volume increases in the market.

China is on other experts’ minds, as well. “Market volatility will be a big player in the market next year, especially with some of the political issues across the world,” says Brian Phipps, Agforce Director of Carrier Sales. “Fuel prices will be a significant player as tensions in the region play out, while the trade deal with China will continue to have a real impact on volume at our ports.”

“Trucking companies will need to be aware of international trade deals and tariffs,” says Brett Eckinger, Director of Sales at Agforce. “They also need to prepare for the upcoming drug enforcement policies that will make it harder for drivers to fail a drug test and move on to another company. Those will be reported in ways that make it impossible for truck drivers to seek employment elsewhere.”

“Carriers with parked trucks that they aren’t able to fill due to the drug testing changes are likely to miss some of this upcoming tailwind,” says Tuley. 

For companies shipping product, the 2020 outlook is fairly positive, thanks to trends in technology and intermodal shipping. “We’ll see better tracking and tracing, and true AI load matching, says Director of Agribusiness John Kuhlmann.

“The digital marketplaces are actually starting to become digital,” says Tuley. “The idea has been there, but the back office part is really still pretty manual. Now that Convoy has announced they’ve become fully digital in select marketplaces, I expect that trend to continue at a quicker pace in 2020. I think we’ll see some consolidation among providers and a few ‘leaders of the pack’ emerge in this space.”

Intermodal, too, should be trending positively. “We’ll see intermodal getting healthier,” says Eckinger. “I think we’ll be able to utilize it a bit more in order to deliver customers’ goods more efficiently.” 

“The rails should see positive growth,” says Tuley, “as long as trucking rates rise to where business can shift back to intermodal. Volumes were very low there in 2019.” 

“Overall, there will be more situational opportunity in 2020 than there was in 2019,” says Kuhlmann. “With the carriers that have shut down and capacity utilization at almost 100%, supply isn’t meeting demand. There will be a lot of chances to fill that gap.” 

Want to understand the best ways to capitalize on the opportunity and volatility of 2020? Call Agforce at 877.367.2324 or email us at inquiry@agforcets.com.

Agforce Vice President Andy Tuley’s 2019 Intermodal Outlook

Precision in an Imprecise Market

2018 was a big year for precision railroading, and that’s an understatement. Some might go so far to say it was a “make or break” year, and I would have to agree – as long as those people also agreed that by December 31, 2018, we could conclude precision railroading probably checked all the boxes on the “make” side of the equation. Of course, that growth did not necessarily come easy for any of us.

According to the Association of American Railroads, intermodal volume rose 5.5 percent in 2018 alone. At Agforce, we experienced that growth firsthand with our partners. By the end of the year, it had become clear that precision railroading is well positioned to go mainstream in 2019, but not without a few growing pains. Thanks in large part to a confluence of factors that included precision railroading and tight trucking capacity, CSX, for example, struggled with delays and the resultant frustrated shippers on the precision railroading side.

Thankfully, CSX adjusted to the “new normal” quickly, modifying and improving service to accommodate pared-down service routes and closed ramp facilities. The use of the word “quickly,” by the way, is highly relative. It did not take CSX long by railroad standards to make some high-impact, significant changes, but to our customers, it felt like an eternity. We were relieved in October 2018, when we started seeing glimmers of the positive angles of precision railroading strategy emerge not just for CSX, but for our intermodal partners as well.

Accept it: Precision Railroading is Here to Stay

The shifts and evolutions that came in 2018 created an intense need for not just data, but the best data and the best analytics to go with it. Agforce brought both last year and is prepared to do so again in the coming year.

Precision railroading can be difficult to deal with on the client side when a railroad first engages in this format. Done right, the strategy dramatically increases efficiency and optimizes use of assets across the board at a railroad, but the implementation period can be rough. CSX picked a rough time to implement precision railroading, in the middle of a tight truck market, since companies were already looking for options to get product off their docks and onto the road or, instead, the rails.

When engaged in successful precision railroading, a railroad like CSX may “shed” operations (including ramps and associated operations) while expanding profits all the while. This can complicate things for shippers to no small degree.

“CSX has more pricing power [now]…particularly in intermodal truck-rail business,” wrote WSJ business editor Paul Page this past October. Precision railroading provides more pricing power for the rails but also causes massive operational changes which makes having a solid strategic partner that much more imperative. The ensuing volatility certainly had a huge impact on our industry in 2018, but we expect things to calm down in the coming year.

What does this mean for Agforce customers? As precision railroading grows in popularity (and it will with results like CSX is posting), it will be imperative that every company have a highly optimized intermodal strategy. Whether you have had the same basic process for years and are in need of a “revamp” or you have only recently begun working with or considering intermodal shipping, rely on Agforce to help you develop and optimize the intermodal strategy right for you.

Rising Rates Likely to Slow in 2019

Fortunately for the entire industry, 2019 will probably not be quite as volatile as its predecessor. At Agforce, we do not expect the same volume of rate increases that we saw in 2018, which were caused by the coupling of a very tight truck market and the emergence of precision railroading as a dominant trend in railroading. Intermodal growth in 2018 was definitely fueled by tight capacity in the truck market, but now it is certainly here to stay.

The trucking industry appears to be taking a pause of its own as 2019 begins, another positive indicator for you that rates on this side could settle in the coming months. After a huge surge in fleet expansions, orders for heavy-duty trucks in North America were 43 percent lower in December 2018 than they were a year prior and down 24 percent month-over-month, ACT Research reported in early January.

However, ACT vice president Steve Tam observed, order volumes are not so low that the hot freight market could be heading for a downturn. “Freight demand is still growing. Freight demands are still increasing; it’s just that they are growing at a lower rate,” he told WSJ. This certainly correlates to our own outlook, with the caveat that this applies mainly to lanes that still “fit” railroads’ new operations. Be alert: precision railroading can create logistical issues if a railroad’s new ramp pairings do not fit with the network customers are used to. Agforce is dedicated to helping partners identify the best fits between providers and customers and also between rail and trucking providers as this evolution continues.

It is Time to Take a “Deep Dive” of Your Own

At Agforce, we have shifted historical business to rail in many cases due to pricing or capacity constraints. This service shift and the ability to meet demand has made rail a better fit for our customers in certain cases, and those instances are increasing in number as more railroads nail down precision railroading and the positive results it can bring.

It is imperative your logistics partner is doing constant, analytical due diligence for you. This is what Agforce does for its customers.

The good news is we don’t expect the spot market to stay up where it is right now. In fact, we’re predicting it will come down while contractual rates rise a modest 3-5 percent in lanes that continue to fit the railroads networks. Agforce continues to carefully and consistently monitor service provider, freight volumes, ramp pairings and schedules to help you optimize your shipping strategies. Untiring attention to detail in this will play a key role in your company’s successful shipping, regardless of mode or combination of transport methods, in 2019.

 

Together, we can leverage 2019 to your advantage. Let’s partner and create solutions for your business. Give us a call at 877.367.2324 or email us at inquiry@agforcets.com.

 

Andy Tuley is the Vice President of Business Development at Agforce Transport Services. Tuley’s long history of work in the logistics and supply chain industry coupled with skills in freight, sales forecasting and P&L management uniquely qualify him to provide Agforce customers with the strategic industry analysis they need each quarter and in the event of industry disruption.

 

Freight Industry Update: Fourth Quarter 2018 & 2019 Market Outlook

The market still supports premium freight rates, based on tight capacity and high demand. Is this the new normal? How long will rates stay high? Let’s consider the current market and discuss possible shifts on the horizon as we round out fourth quarter and plan for 2019.

Freight Industry Right Now

As of October, freight industry executives still reported turning down record amounts of freight. However, the disparity between spot market rates and contract rates indicate we could see capacity and demand begin to balance. To understand what is happening currently, we also need to consider the national spot market rate though. Averages are a bit down in comparison to earlier in the year, but they are still up 20% annually. Experts do feel the market is stabilized for the remainder of fourth quarter and we could start to see some balance in capacity that extends into early 2019.

Note: Winter weather storms could impact capacity and rates, similar to Hurricanes Harvey and Irma, which caused a spike in spot market demand in 2017.

 

The Carrier Take on Freight Rates

Ask most carriers and they will tell you they have been on the short end of the stick when it comes to trucking rates for too long. Citing more than 10 years of profit margins around pennies on the dollar. They attribute the inability to reinvest in drivers and equipment to the lack of earnings. Many believe the higher rates are the new normal, and shippers should prepare their strategies with this in mind long term.

Some recent data points from DAT may not fully align with carrier thoughts. Van, flatbed and reefer average spot market rates were down in August. However, annually the average spot prices were still up per mile: van rates 35 cents; flatbed 46 cents; reefer 31 cents.

In a recent Logistics Management article, Mark Montague, DAT pricing analyst, reminds us that “demand peaks before rates peak, with rates tending to stay up, even as things start to cool off at times.”

Note: While there have been some dips, big picture spot market conditions support the rate increases we have seen for the last couple of years.

 

4th Quarter Rates

Present contract freight rates, fourth quarter 2018, were negotiated in late 2017 and early 2018, a time that was extremely favorable to carriers with capacity low and demand high. September 2018 found a wide disparity between the average spot rate and contract rates, with average spot rates favored by 23 cents per mile.

This could indicate an upcoming shift in the demand to capacity ratio. We may begin to see the freight industry balance for shippers. Tender turn-down by carriers have not been prevalent in recent weeks and there has been success in securing lanes for contract freight. If demand does indeed begin to indicate parity, spot market rates should only be a factor for one-off shipments and short-lived spikes in demand.

Note: Driver shortage still impacts rates due to the impact on capacity crunch, but the numbers are on the rise which could help to balance the market. The Bureau of Labor Statistics data shows driver numbers up by about 31,000.

 

2019 Freight Industry Outlook

The optimal state for the freight industry may very well be equality between supply and demand.
That balance seems like a thing of fairy tales. The winding path of the freight industry market is ongoing, impacted by carriers, shippers, consumers and the overall economy. It looks like 2019 will continue on the same curvy road. There are more than a few considerations as you prepare your strategy for the upcoming year:

  • Though trade wars are top of mind with the full impact uncertain, the strong economy looks as though it will hold.
  • There are strong indicators of freight rates continuing to rise. However the year-over-year percentage of increase should be below 2018 levels.
  • Carriers are investing in new equipment, based on the increase in sales of Class 8 trucks. This is not an indicator of more drivers necessarily, more an affirmation of trucking companies need of technology upgrades to meet regulations. Added bonus: Cutting-edge equipment is attractive to new drivers.
  • Consumers are driving changes in trucking industry operations. Shippers have shifted to more regional hubs in order to cut transit time. This has impacted the average haul distance — dropping nearly 300 miles per load since 2005.
  • Owner operators are banking on the spot market continuing to pay off. Many leaving small and large carriers to go out on their own.
  • The driver shortage is expected to remain at record levels but will taper off.
  • Capacity should loosen up just a bit with a possible double-digit percentage decrease in the volume of freight tendered.
Note: The American Trucking Associations’ Freight Forecast projected freight volumes to increase more than 35% by 2029.

 

What Can Shippers Do to Prepare?

With so much in flux that can impact you and your business’s profits, how should you navigate the freight industry peaks and valleys? Here are a few ideas:

1. Don’t forget the basics

The freight industry is cyclical, often hand-in-hand with the national stage, driven by one of the most basic economic principles: supply and demand. When we have a capacity shortage, the freight rates will negatively impact bottom lines.

2. Invest in analysis

You have your shipment data; compare it to what is happening in the market. This can help you formulate a picture that leads to a greater understanding of trends to inform your longer-term strategies.

3. Work with a 3PL

3PLs are in the best position for industry knowledge. They set pricing with both carriers and shippers. A good alliance will help you to ride the freight waves gracefully, helping your business to succeed in protecting its bottom line.

Together, we can simplify logistics. Let’s partner and create solutions for your business. Give us a call at 877.367.2324 or email us at inquiry@agforcets.com.