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Carl Fleming has been a truck driver since 1977. But, like many truck drivers, he says 2019 has been especially rough for him.
Fleming is an owner-operator, or a truck driver who owns his own truck and works on a freelance basis. He said he's made $20,000 less this year compared with last year.
"My fuel costs have not gone down, nor my insurance costs," Fleming told Business Insider. "A lot of small owner-operators have thrown in the towel so to speak or have lost everything they own."
It's not just truck drivers who are struggling. Major trucking companies have consistently missed and had to revise their earnings targets this year. (Although, on a positive note, J.B. Hunt, one of the industry's pathfinders, announced better-than-expected earnings last week. The announcement led to a rally in trucking stocks, and Cowen's Jason Seidl called it a "glimmer of hope" in an analyst note.)
But others expect the hard times to keep coming. Morgan Stanley's Ravi Shanker told investors that the bank's transportation team expected second-quarter earnings, which come out in July and early August, to be "poor." Morgan Stanley cut its estimates across the trucking sector by 4%.
"While there are some signs of hope in the data and expectations for a 2H rebound, we do not expect the damage in 1H to be undone," Shanker wrote in a note to investors.
There isn't one clean explanation for why a slowdown is hitting the $800 million trucking industry. But analysts and truck drivers pointed to a few reasons why it's on shaky ground in 2019.
Trucking is highly cyclical, and we're coming off from a massive uptick in the market
The leading explanation for why trucking is in a slump right now goes back to that central tenet of economics — supply and demand.
Larger economic trends — like increased factory, retail, or construction activity — push up the demand for truck drivers. There's just more stuff to drive around, and you need people and trucks to move them. The supply comes from how many trucks and truck drivers are available.
When demand is high, trucking companies tend to buy lots of trucks and hire new drivers in anticipation for profits to come. But then, once the supply of trucks and truckers catches up to demand, rates fall, making that investment hard to pay off.
That causes an issue called overcapacity. Capacity, meaning the number of trucks available to move loads, was up by 29.9% in June year over year in the spot market, where trucking jobs are bid on demand rather than through a prearranged contract. "Part of the industry's challenge being cyclically driven as it is, is overcapacity," Michael DiCecco, the president of Huntington Bank's asset-finance sector, told Business Insider.
Last year was particularly profitable for truckers, and it encouraged lots of companies to buy more trucks and hire more drivers. Companies ordered so many new trucks last year that by January, there was still an eight-month backlog of new orders.
The economy has weakened
Along with there being too many trucks and truckers in the industry now, the economy wasn't as strong in the first half of 2019 as it was last year.
As a result, trucking loads were down 50.3% in June compared with June 2018 in the spot market. Rates also dipped by as much as 18.5% over that same period.
In June, factory activity growth was its slowest since October 2016, according to the Institute for Supply Management. That means manufacturers didn't receive as many orders, and there were fewer things to move.
Growth in consumer spending in the first half of 2019 was down from last year, hitting a trough in April, when sales fell by 0.2%.
But, as of late, a "sharp acceleration" in retail spending is giving rise to rosier outlooks for the rest of 2019. Joseph Brusuelas, the chief economist at RSM US LLP, told The Wall Street Journal this week that the uptick in consumer spending helps offset trade tensions.
"The consumer has a fairly bright outlook at this point, just based on job gains and wage gains," Brusuelas said.
If retail and manufacturing activity indeed upticks in the second half of this year, that will help trucking out of its downturn, too.
The weather in early 2019 was terrible
Mother Nature gets some of the blame.
Peggy Dorf, senior market analyst at DAT Solutions, said the weather in the first half of 2019 was so "dreadful" that it destabilized the trucking industry.
The winter melee in the trucking hub of the Midwest, where cities like Chicago were hit with record-low temperatures and blizzards, froze transportation. J.B. Hunt Chief Financial Officer David Mee told investors that bad weather forced them to cancel loads, while US Xpress CEO Eric Fuller said bad weather hurt the company to a similar degree as the dip in freight volumes.
Every year, bad weather causes 23% of truck delays and costs the industry some $3.5 billion, FreightWaves reported.
"I think the bigger thing in our data is really been the weather patterns affecting those sharpest drops," Mark Montague, the senior industry pricing analyst at DAT Solutions, told Business Insider.
Transportation companies across the board are dealing with tariff 'uncertainty'
Dorf and Montague at DAT said the trade war couldn't be to blame for all of trucking's woes, but it is affecting rates in certain regions.
"West Coast was down versus what we anticipated," Matthews said. That was "not only because of Chinese New Year but because of the potential tariffs that were supposed to go in in March 1."
Elsewhere in freight, railroad titans say the trade war has hurt business. CSX, one of the US's largest railroads, reported its first drop in annual sales since 2016 last week.
"The present economic backdrop is one of the most puzzling I have experienced in my career," James Foote, CSX's chief executive, told investors and analysts on a conference call. "Both global and US economic conditions have been unusual this year, to say the least, and have impacted our volumes."
On the other hand, it might not be as bad as it looks
Seidl of Cowen wrote to investors in May, "The death of freight has been greatly exaggerated."
Seidl said in his note that "the tremendous strength in the freight market in the first half of 2018" just makes 2019 look really bad. Indeed, 2019's rates are on par with what we saw in 2017 — they haven't hit the recession qualities of 2016.
Indeed, along with retail and manufacturing indicators picking up, there are some positive signs that show we're not in an outright trucking recession. For instance, the trucking industry has generated 11,700 jobs in 2019, including 7,300 in the second quarter.
Still, everyone from independent truckers all the way up to massive public-freight companies are feeling the pinch — and some are outright freaked out. Lexington, Kentucky-based owner-operator Chad Boblett previously told Business Insider that some truck drivers were seeing a "bloodbath" in just how low rates had become.
Industry insiders said in a recent Morgan Stanley survey that they expected more companies to go bankrupt or scale back business. The rate sentiment among the trucking companies surveyed was "continues to be well below 2016 levels."
Did we miss anything? Are you a truck driver who is struggling? Do you think the idea that there's a freight recession is overblown? Send the reporter a note at rpremack@businessinsider.com.
