As we start to close out 2019, planning for the year ahead is a current topic on everyone’s mind. Typically, we can look to clues from the past 12 months to offer insight into the next 12, however 2019 sent a flurry of mixed signals. On the negative side, manufacturing slumped and railroad volumes were down. On the positive side, truckload freight increased 4% year over year, and the spot market grew even faster. Before understanding what 2020 has in store, let’s first review the key market changes that occurred in 2019.
2019 IN REVIEW
Pricing – While the trucking industry saw growth with a 4% increase in contract volume and a 7% increase in spot volume, rates did not keep pace. This is represented by a 2% decrease in contract rates and a 16% decrease in spot rates.
Capacity & Demand – More motor carriers closed their doors in the first half of 2019 than in all of 2018, according to the US Bank Freight Payment Index. As year-over-year rates inflated to historical highs in 2018, carriers bought a record amount of trucks. This oversupply (relative to demand) drove down rates until enough of the excess capacity was pushed back out of the market.
The key change we should expect to see in 2020 is that truckload shipments will cost more. According to DAT data scientists, spot market van rates should bounce back 4-6% in the second half of 2020. We should also expect to see around a 2% increase in contract rates. Shippers can anticipate primary tender acceptance erosion by Q2 2020, which points to more unplanned exposure to the spot market.
However, a number of factors could alter these projections, including the fact that 2020 is a presidential election year. Seasonal demand dislocations and unplanned weather events may also have a greater impact on spot rates and service levels heading into the new year.
FACTORS THAT WILL TRANSFORM THE INDUSTRY
- Technology – The bar has been raised for freight visibility as shippers continue to demand more precise information about the location and status of their shipments. Many brokers are now requiring 3rd party ELD integration, including Spot. Carriers who do not adhere to these technological improvements will risk being kicked out of their key broker networks.
- Driver Availability – The driver population continues to age, and stricter law enforcement is coming, specifically with drug testing. These factors could start to shrink an already small pool of available drivers. Carriers currently operating AOBRDs are also required to switch to the more restrictive ELDs by December 16th, which will further constrain capacity in 2020.
- China Trade – As we await a new trade agreement with China, there’s still uncertainty over how the market will react as it could disrupt typical freight patterns. In addition, there’s hesitancy to invest in domestic manufacturing until the agreement has been sorted out.
- Rising Fuel Costs – Fuel has always been one of the largest factors when accounting for the expenses that trucking companies have to incur, and the rising cost of fuel has always been a key area of concern. Even a small change in oil field activity can have a large impact on the industry as a whole.
- Influence of E-Commerce – Over the past few years, the e-commerce industry has grown tremendously. We currently live in a world where the majority of consumers prefer to shop online vs. a brick & mortar store. E-commerce and trucking go hand in hand, and because the e-commerce industry is likely to grow further in 2020, the trucking industry should also experience positive growth.
As both shippers and carriers prepare for 2020, there’s a few key things to keep in mind. It’s important to stick with Shipper & Carrier of Choice strategies while continuing to prioritize strategic business relationships. Also, while building out a 2020 strategy, we expect the freight market to mirror 2017, so utilizing your historical data from 2017 should allow for a more realistic comparison.