Turning the Corner: How the Trucking Industry Bounces Back in 2020

“2018 was a robust year. 2019 was the complete opposite.”

Jack Atkins, managing director, research analyst at Stephens Inc. summed up the trucking industry’s current mindset early in his presentation at the 2020 Trucking Owners and Leaders Roundtable hosted by Katz, Sapper & Miller’s Transportation Services Group, the law offices of Scopelitis, Garvin, Light, Hanson & Feary, and KSM Transport Advisors on Feb. 4 in Indianapolis.

At Stephens Inc., an Arkansas-based full-service investment bank, Atkins assesses and analyzes companies based on their earnings. For those in the audience not already convinced of the industry’s current struggles – or those in denial from the impact of 2019 – Atkins offered a sobering reminder. But his message was not without some semblance of hope.

“We’re fragmented, so there’s not a lot of pricing power in the trucking industry,” he said. “But it feels like we’re at the bottom of a pricing cycle, and things should begin to pick up. We’re done processing through excess inventory, so conditions should return to normal.”

Atkins also took time to spotlight the impact of Gross Domestic Product (GDP), which was up in 2018 but back to normal in 2019. GDP is a reflection of population and productivity. Because our population is not growing quickly, productivity has not increased as a result. Factor in an uncertain political climate and many owners are hesitant to invest in their business.

Other key issues facing the industry highlighted by Atkins include the following:

• Demographic challenges are not going away and they are not getting better. Drivers continue to get older, are underpaid, and turnover remains steady.
• New regulatory changes are beginning to be implemented and it is expected more are on the way. The industry is struggling to meet compliance requirements.
• The industry remains at full employment, but the low unemployment rate is driving inflation.
• Carriers had too much truck capacity in 2019. Early signs point to a much-needed capacity reduction in 2020.
• Spot and contract rates appear to have stabilized as capacity attrition has started to take place.
• E-commerce continues to alter supply chains, driving lower length of haul.

The most noteworthy issue, and one all carriers must consider, was raised late in the presentation. Although rate increases have ticked upward over the past decade, the results are covering only the cost of inflation. Ultimately, it is a model that cannot survive. “The industry will have to consolidate to prosper,” said Atkins.

As 2020 progresses, several questions will require answers to assess the strength of the trucking industry.

• Does the U.S. consumer remain resilient despite pay not keeping up with the cost of living?
• Will we see improved global trade activity?
• Will businesses hit the pause button on their investment cycle because of the election?
• How quickly will capacity exit the market in 2020?
• How will larger brokers and technology players navigate the next 12 months?
• Will increased regulatory changes impact capacity?
• Should carriers expect a difficult bid season, but one not as dire as expected?
• What will be the impact of Coronavirus (COVID-19) on the global supply chain and GDP?

The answers to these questions are still to be determined. In the meantime, carriers are keeping expectations low as they navigate an uncertain future. The consensus is business as usual, perhaps with a few pleasant surprises.

Learn more about topics discussed at the 2020 Trucking Owners and Leaders Roundtable: Indianapolis, including our five key takeaways for 2020 and how carriers can implement The Great Game of Business to ensure long-term success.