Current Freight Transportation Industry Outlook

Jan 4, 2019 By:

2018 was a big year for the transportation industry—a booming freight environment that tightened capacity, the enforcement of the electronic logging device (ELD) mandate, a continuing driver shortage, and the beginning of a process to potentially change some federal hours-of-service rules top the list of highlights.  

Largely, 2018 was considered a good year for our economy. However, the last quarter of 2018 was marked by decelerating economic growth—GDP growth in the fourth quarter was only 2.7 percent, down from 3.4 percent in the third quarter and 4.2 percent in the second. There seems to be little consensus among economists and leaders on the outlook for 2019 as the country faces stock market volatility, trade war concerns, the Federal Reserve’s fourth quarter interest rate hike—the fourth in 2018—among other economic uncertainties. As a result, the central bank has estimated that the U.S. economy will grow only 2.3 percent in 2019, according to CNBC, especially as the country prepares for what will surely be a contentious election in 2020. 

Despite a global economic slowdown, our population still needs a multitude of products that can only be hauled by heavy-duty trucks. Now, the questions will be if the industry can hire enough professional drivers to haul the freight and how the regulatory environment will impact business. 

CAPACITY 

Demand and Rates

Throughout the first half of 2018, the transportation industry experienced high demand and extremely tight capacity. The Morgan Stanley Truckload Freight Index (TFLI), a hallmark in the industry to gauge capacity, peaked on July 11, then quickly began to decline through September and remained steady through the end of the year at a much lower rate than the first half of the year. In general, the TLFI currently shows trucking supply (capacity) growing faster than demand (freight), a dynamic that could put downward pressure on rates. The index’s straight-line forecast projects 2019 trending below 2018. 

The DAT Freight Index, which reflects load posting volume on the DAT network of load boards, reported that spot market freight volume and rates in November slipped 2.5 percent from October—and 24 percent year over year from November 2017.  

However, the Cass Truckload Linehaul Index, a measure of per-mile truckload linehaul rates minus fuel, saw an increase of 7.9 percent year-over-year in November 2018, which was a slightly lower increase from the all-time high achieved in October 2018. Overall, Cass predicted that contract pricing rates would increase 6 to 12 percent in 2018 because of tightening capacity and strong freight demand. 

“The hard data of physical goods flow, which is uninfluenced by human emotion, confirms that people are still making things, shipping things, and buying/consuming things. Although not at the scorching pace attained earlier this year, expansion is still taking place at an above average pace,” Cass reported in December. “The current level of volume and pricing growth is suggesting that, while it’s still growing, the U.S. economy is simply not growing at the rate it was and that it may have reached its short-term expansion limit.” 

Finally, the American Trucking Association’s (ATA) For-Hire Truck Tonnage Index showed a 0.4 percent increase in November 2018. "The fact that tonnage rose in November after a strong October is impressive," said ATA Chief Economist Bob Costello in a release. "With continued strength in November, tonnage growth is on pace to be the best year since 1998." In 2017, trucks hauled 10.77 tons of freight—or 70.2 percent of all tonnage carried by all modes of domestic freight transportation.  

Driver Shortage and Driver Pay 

No trucking article is complete without a mention of the ongoing shortage of professional truckers—currently estimated at 50,000 drivers. In order to haul the increased demand for freight and bridge the gap left by an aging and retiring population of drivers, the industry will likely continue to turn to pay increases in 2019 to attract new people to the industry—and to poach seasoned drivers from other companies. To pay drivers more, carriers will likely continue to increase rates for shippers. The National Transportation Institute expects driver wages to be up 6 to 10 percent year-over-year in 2019—and the industry has already seen wage increases, around 10 percent since early 2017. This upward continued pressure on wages could mean that freight rates will rise at least 5 to 7 percent in 2019, according to Stifel Financial Group, after increasing 12 percent in 2018. 

Equipment 

Equipment sales remain high; orders for trailers in October hit 53,000, and class 8 vehicle orders reached 43,600—a 21 percent year-over-year increase. Class 8 orders declined in November 2018, but analysts were expecting the falloff as most 2019 build spots are already filled, according to Transport Topics. The 2018 increase in tractor and trailer orders was due in part to the freight boom and resulting maxed-out capacity, as well as demand for improved productivity in the supply chain. Experts expect orders to remain steady throughout 2019, and for production to near 335,000 class 8 units, according to Transport Topics. However, production could decline sharply in 2020 after the replacement demand is met in 2018 and 2019. The largest capacity restraint related to equipment is finding qualified drivers to fill the seats. 

Regulatory Environment  

While the trucking industry is highly regulated, the following two issues will likely see the most traction and impact in 2019. For more detail on a variety of regulations, please read our Trucking Industry Outlook White Paper

Hours-of-Service Flexibility  

In August 2018, the Federal Motor Carrier Safety Administration FMCSA issued an Advanced Notice of Proposed Rulemaking (ANPRM) seeking industry comments on the current hours-of-service regulations after frequent requests for flexibility. ANPRM sought input on whether the 30-minute rest break is necessary, if the 14-hour work day window should be expanded during adverse weather conditions, if short-haul drivers should be allowed to operate 14 hours in a day instead of the current 12-hour allotment, and what alternatives would make the sleeper berth options more effective. Since the new rules were put in place in 2013, the industry has sought revision to the 10-hour rest break rule, which requires drivers to be off-duty or in a sleeper berth for 10 consecutive hours before driving again after completing a 14-hour workday. Allowing drivers to split this sleeper berth, proponents of change argue, would eliminate the need to for the 30-minute break rule—requiring that a driver take a 30-minute break after eight hours of working before being able to drive again. The FMCSA received thousands of comments, and the agency was expected to publish a rule change proposal in the first few months of 2019. The government shutdown, however, may slow down the publication process. 

Meal and Rest Break Provisions 

Even though the trucking industry is regulated by these federal HOS rules, some states have issued their own regulations that are often in conflict with the federal rules. In these states, plaintiffs’ attorneys are using state regulation of trucking companies as the basis of expensive lawsuits related to meal and rest breaks and pay types. And many courts are siding with the states, especially in California. As a result, the top regulatory priority for the American Trucking Associations (ATA) has long been to restore the strength of the Federal Aviation Administration Authorization Act of 1994 (F4A)—the regulation that broadly preempted states from regulating interstate motor carriers. After Congress failed to act on the issue for four years, the trucking groups petitioned the FMCSA to determine whether California’s rules are preempted under federal regulations, arguing that California’s duplicative break rules hinder safety, create an unreasonable burden to interstate commerce, and are incompatible with federal regulations. In a trucking industry triumph, the FMCSA granted the petition blocking California’s rules in December 2018. 

“FMCSA is granting this petition to ensure uniform and consistent rules in order to promote safety and economic growth. Drivers, consumers, and job creators are best served by reliable and consistent rules,” according to the FMCSA. “This action prioritizes safety, jobs, and uniformity for truck drivers.” 

2019 Trucking Outlook  

Overall, 2019 is expected to bring level demand for freight, and pricing yields could increase slightly, as carriers will turn to shippers for contract rate and spot market increases to cover increases in driver wages. Shippers that detain drivers for extended periods or have narrow delivery windows—and therefore limit efficiency—could see even higher rates or be challenged in finding a carrier partner at all. Indeed, carriers could continue to be picky in the freight they haul—freight that yields well and that drivers want to haul. 

Carriers are hauling freight in regions of the country where it has historically been easier to find and hire professional drivers—and the average length of haul for loads will shorten in order to make the job more appealing. In the short term, carriers will replace aging equipment as they’re able—because newer trucks mean more driver-friendly comforts.  

As an asset-based 3PL, Ruan is well positioned as we enter 2019 to serve customers in all verticals with our Integrated Solutions offering—Dedicated Contract Transportation, Supply Chain Solutions, and Value-added Warehousing. 

Want to learn more? Contact us today to receive a free analysis of your transportation spend. Call 1-800-782-6669, ext. 7, or email us at Solutions@ruan.com.