While 2018 brought record profits for the U.S. trucking industry, the outlook for 2019 is not quite so optimistic. Although the trucking sector is expected to grow in the coming year, that growth will be considerably less than it was in 2018, according to industry experts.
Here are the top factors contributing to a slowdown in the trucking industry:
Falling oil prices
Falling oil prices are a major contributor to the trucking industry’s slowing growth. Current oil prices – about $50 per barrel – are at riskof falling into the $40 range in 2019. This would result in a slowdown in the manufacturing of oil-extracting equipment, which would lead to fewer trucks needed in oil patches.
Tariffs and trade wars
Another issue for the trucking industry are growing concerns about the impacts of tariffs on Chinese imports due to the U.S.’s current trade war with China. As the U.S. introduced heavy tariffs of 25% on more than $200 billion in Chinese goods, scheduled to take effect on January 1stbut postponed to March 1st, many retailers and manufacturing companies hastened their imports in 2018 to avoid these tariffs.
This resulted in a much slower startfor shipping in 2019 than that of 2018. And shipping demand can continue to drop due to the negative impact of tariffs. According to analysts at online freight marketplace DAT Solutions, due to tariffs and other factors, carriers can “expect load volumes to drop significantly.”
Slowing U.S. manufacturing
The U.S.’s trade war with China is not only affecting imports, but U.S. manufacturing as well. According to the Institute for Supply Management’s (ISM) December manufacturing report released in January 2019, U.S. manufacturing is starting to show signs of slowing. Although the sector continues to grow, growth is significantly declining since November of last year. For instance, ISM’s main manufacturing index dropped from 59.3% in November to 54.1% in December. This is its lowest level since November 2016.
While consumption remains strong, the uncertainty surrounding the current trade war and the U.S.’s policy on trade is resulting in lower manufacturing employment growth as well as levels of growth in production. The potential economic slowdown on the horizon is also considered to be a factor in this growing uncertainty.
Softening demand and lower rates
With the above factors contributing to declining demand for shipping, freight orders are expected to grow at about half of the rate seen in 2018. According to Cass Information Systems, Inc., freight experienced its first annual decline in two years, with the index of U.S. domestic freight volumes falling 0.8% in December 2018 compared to December 2017.
Freight orders are now forecasted to grow 2 to 3% this year, compared to 5% growth in 2018. Additionally, DAT Solutions states that there are now more trucks available than freight to haul. This increased capacity and softening demand is causing many shippers to knock down their pries. Trucking rates on the sport market fell in December for the first time in several years, DAT Solutions reported.