Saturday, November 30, 2019

Where Did The Freight Go & When Will It Come Back? Part 3

So back to the questions: Where did the freight go and when will it come back?

Where did it go? First of all, 2017-2018 was a perfect storm of goodness for carriers. Demand driven by low interest rates, tax cuts, affordable energy and new purchasing power from millennials who finally started experiencing enough career advancement to move forward with household formation. Take away the freight bubble of this short period and 2019 doesn’t look much different than other dips we’ve experienced. Secondly, e-commerce is driving freight into different channels with different providers, disrupting truckload and LTL carriers. Third, we’ve been in a long-running consumer driven recovery for almost a decade. Fatigue is setting in. People can only buy so much stuff for so long. Fourth, the pain of 2019 was exacerbated by the carrier response to “the boom”. Driver pay was increased dramatically. The driver quality and productivity did not increase. Carriers are stuck with the new higher pay levels. Fifth, a lot of one-way TL freight has shifted to dedicated fleets or private fleets.

When will it come back? First quick answer, not in 2020. It’s not going to get worse, but it’s not going to get better. We may get a bump IF the tariff war gets settled (and I think it will). So when will it come back to last, at least for a year or two? Best case 2021. Regardless of who wins the election. It will get better. Why? First, capacity is going to get very tight. Insurance costs alone will drive a number of carriers out of business. Secondly, we still have a few good years of consumer driven economic activity as the millennials play catch up on household formation. Third, by 2021 we will certainly be past the tariff war issue and goods will be flowing. In addition we’ll see more near-shoring with production moving to Mexico and even some into the States. Fourth, I think we finally start to get some real movement on infrastructure which will create more freight opportunities.

I did say that things will get better regardless of who wins the election. But let’s be clear. If we end up with a Democrat in the White House, especially a far left Democrat; the recovery will not be as robust. And I think it is likely that we will end up with a Democrat. However, even if they run on a far-left agenda, history says they will move toward the middle. So will the freight come back in 2021? Probably. Will it be like 2017-18? Not even close.

No comments: