For months, from the latter part of 2022 until at least midway through 2023, warnings of an economic recession remained in the nation’s business headlines. Economists speculated about when the recession would arrive, how severe it would be, and what letter of the alphabet the line graph would represent.
In the meantime, freight rates continued to fall and tonnage amounts remained subdued. The number of carriers surviving the deteriorating market shrank with each passing month.
The predicted economic recession didn’t happen, but another one, which has a deep impact on the trucking industry did — and it’s still going on. We’re talking about the freight recession.
Industry analysts say the freight recession is nearing its end; the market is about to turn. However, carriers are still struggling while they wait for that upturn, which could start today — or it could be a few more months or longer.
“Freight recessions happen a lot more frequently than economic recessions,” explained Tim Denoyer, vice president and senior analyst at ACT Research. “Freight markets are just more cyclical than the economy at large.”
Denoyer lists several reasons for the condition of the freight market. A primary reason is that capacity keeps growing. Carriers are still taking delivery of trucks that were ordered six to eight months ago and placing orders for more.
“Fundamental demand suggests that they’re building (trucks) at peak levels right now, maximum production,” he said. “(That’s) a bit more capacity than we need.”
The inventory cycle is another factor, Denoyer says. “Destocking” is a word commonly seen in recent news stories. Retailers are adjusting their product inventories downward to levels that more closely match customer demand. Manufacturers, with stockpiles of finished product and reduced production levels, don’t need to stock as many parts and components.
The result is fewer orders and fewer available shipments. Meanwhile, the supply of available trucks is increasing while the demand for them remains low. Carriers that have been in business for decades understand the ebb and flow of the market and strategize to get through the tough times.
“The first thing that comes to mind is controlling costs very carefully,” Denoyer said. “Then, high levels of service and good relationships around the industry are critical.”
Belt-tightening is a common reaction when the revenue numbers start falling, but it’s important that cost-cutting measures don’t impact service levels. For example, it’s common to address efficiency when revenues are lower, reducing deadhead and out-of-route miles and taking other actions. If those actions impact on-time deliveries, customers that may already be checking around for more favorable rates might be motivated to step up the search.
Beefing up communication efforts can help keep vital customers in the fold, but staff reductions during difficult times can have a negative impact on those efforts, and at the worst possible time. Carriers that are successful in containing expenses while maintaining crucial customer relationships increase their chances of weathering the economic storm.
Those cost-containment efforts can impact another critical area, too.
“It’s not the time to take your foot off the gas from a compliance perspective,” said Mike Precia, president and CEO of Fleetworthy Solutions.
“Making sure that your safety culture doesn’t deteriorate because of the economy, having a bad patch, is important,” he continued. “The impact of a nuclear verdict because you’re not keeping an eye on compliance is even more detrimental.”
Precia says staff-reduction efforts can reduce the effectiveness of a company’s safety and compliance departments.
“Regardless of freight demand and the economy, you still have drivers and assets on the road. You’re still exposed to that risk,” he said.
Reduction of safety staff isn’t the only personnel change that can impact safety. In tough economies, fleet managers are often asked to manage more trucks and drivers — increasing employee workloads and, at the same, increasing the risk of safety processes falling through the cracks. In addition, reducing a company’s vehicle-maintenance staff can impact inspection and maintenance cycles, resulting in even more compliance issues.
Staffing problems don’t end when staff levels return to previous levels, Precia warns.
“If you’re replacing people that you let go earlier, it takes more time to rebuild the culture that you lost,” he said.
Precia suggests that some carriers could benefit from partnering with service providers that allow them to outsource critical compliance functions so they can focus on other facets of their business.
“It’s an interesting time right now,” he explained. “(Fleetworthy is) pretty stable because of the value we drive for our customers. What we see is customers that are working with us when there’s this uncertainty from an economic standpoint. I think they look at us as a really important part of their ability to get through these times.”
Some carriers may be considering downsizing their fleet rather than cutting employees.
“I like that idea still today and I’ve liked it for a while now, but it’s we’re getting to the point where I’m not gonna like it much longer,” said ACT’s Denoyer. No one wants the expense of trucks they can’t find freight or drivers for, but if equipment can’t be replaced quickly when the market turns upward, that’s a risk, too. At the peak of the new truck build backlog, the wait for new equipment was approaching a year.
Keeping an eye on freight availability and rates is a critical part of managing a fleet, and there are numerous resources available, including forecasting and analytics firms that offer subscriptions to various reports. Banks and investment firms can also provide valuable data. Much of the information is free, although subscriptions may be required for more in-depth analysis.
It’s not easy to maneuver a trucking business through a freight recession. Cost containment, high service levels that promote good customer relations, and remaining knowledgeable about the market and the general economy are sound practices to not only survive, but also prepare for the next upcycle.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.