The trucking industry has been suffering. And it doesn’t appear that the outlook for 2020 is any more optimistic.
While many of us may not consider the importance of the trucking industry in our own lives, the health of this pivotal industry has a wide-reaching impact on a number of other critical businesses. Furthermore, there is evidence that the trucking industry may be a canary in the coal mine for the economy at large. In other words, we should all be paying attention to the health of the trucking business. Let’s take a deeper dive into the current status of the industry, the projected outlook for 2020, and the impact this will have on the economy at large.
Q4 2019 hedge fund letters, conferences and more
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Where Things Stand
The trucking business experienced a boom in 2017 and 2018. Much of the growth the industry experienced in 2018, which held two of the best quarters of revenue in the history of trucking, was attributed to tax cuts that were put into place in 2017. Unfortunately, this period of growth and profitability did not last. High tariffs and looming trade wars had a major impact on the trucking industry in 2019. According to Broughton Capital, by September 30th of 2019, 795 trucking companies were forced to shut down. This is a substantial number considering only 310 trucking companies shut down throughout the entire year of 2018.
Projected Outlook For 2020
While 2019 was a very tough year for the trucking industry, it doesn’t appear that the outlook for 2020 is any more promising. Industry analyst Kenny Vieth says, “The evidence overwhelmingly suggests 2020 is going to be a very, very tough year.”
Vieth isn’t alone in his prediction for a tough 2020. Rob Misheloff, the president of Smarter Finance USA, an equipment leasing and financing company for small businesses, says he doesn’t expect the trucking industry to recover from 2019’s setbacks any time soon. He cites the White House’s current tariff policy as the major issue for the struggling trucking businesses. Referring to his clients who are seeking help with their trucking companies Misheloff says: “It’s out of their hands.” As a result Misheloff struggles to offer any helpful advice. “There’s nothing they can do and there’s no magic bullet. Shipping’s down, and that’s partially because of the trade war,” he says.
The Canary in the Coal mine
So, why does all of this matter to the average American?
There are a few reasons why the health of the trucking industry is especially salient. Firstly, 71% of all the freight tonnage moved in the U.S. goes on trucks. So, a number of adjacent industries, as well as industries that rely on trucks to move their products, are impacted by the health of the trucking business. In addition, RTS Financial estimates over 7 million jobs are tied to the trucking industry.
But, that’s not all. As Misheloff points out, trucking is an indicator of the financial wellbeing of the country’s economy beyond the trucking industry. When the trucking industry slows down, the rest of the economy tends to follow. “That doesn’t necessarily mean that [the] economy’s going to go into recession,[but] the probability has increased,” says Misheloff. In other words, the trucking business may be the canary in the coal mine for the economy at large.
Much of the ability of the trucking industry to recover hinges on resolving the trade differences between the U.S. and China. Vieth predicts that a resolution of the trade differences between the U.S. and China would “accelerate the global economy, spurring a strong rebound in commodity pricing and machinery demand.” American Trucking Associations chief economist, Bob Costello, agrees, “If we get the trade stuff figured out, you might see a return to above-trend growth. When we get to the back end of this it’s going to be as good as it was in 2018, maybe better. But we just need to get there.”
Getting there is what the trucking industry does best. So, here’s hoping this canary in the coal mine is simply taking a short rest.