A recession slammed trucking last year — and experts predict that 2020 will bring more bankruptcies and plunging truck orders

  • A recession slammed trucking in 2019. In the first half of the year alone, some 640 trucking companies went out of business, according to Broughton Capital. That’s more than twice the failures seen in the first half of 2018.
  • Experts forecast that 2020 will be more of the same. ACT Research forecasts that new truck orders will fall by 35%. Morgan Stanley is cautioning that public truckers will report weak earnings for at least the next six months.
  • That’s thanks partially to the downturn in industrials. Manufacturing has contracted for five straight months. Trucking-specific headwinds are also at play – including an over-capacity of drivers and the uptick of insurance rates.
  • Visit Business Insider’s homepage for more stories.

Cathy Brown was flush with cash.

In 2018, which was the first full year she ran a small trucking company with her husband, the operation generated $1.3 million in revenue. They had managed to hire six drivers and a dispatcher.

But by April of 2019, the company was bankrupt – thanks to what some truck drivers have described to Business Insider as the trucking “bloodbath,” in which rates in 2019 fell by as much as 30% from record highs in 2018. Brown said loads that once paid $2,600 dropped to $1,300.

“Carriers were underbidding each other just to secure loads and keep their trucks moving,” Brown, who lives in Elgin, Illinois, told Business Insider. “Business for us was hit, and hit hard.”

Now, the couple is scrambling to keep their home from foreclosure.

In 2019, a trucking recession slammed everyone from truck drivers to massive public companies to equipment manufacturers. In the first half of the year alone, some 640 trucking companies went out of business, according to Broughton Capital. That’s more than twice the failures seen in the first half of 2018.

That was reflected in the number of big rigs purchased, too. According to freight research firm FTR, companies in North America ordered 64% fewer trucks in 2019 compared to the year before. They ordered the fewest number of trucks since 2010.

truck orders

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FTR; Andy Kiersz/Business Insider

Experts told Business Insider that 2020 is likely to be more of the same.

“We had more carriers losing their authority in the fourth quarter than any other quarter (on record),” Avery Vise, the vice president of trucking at FTR, told Business Insider. “There’s no reason to think that’s going to stop on a dime.”

According to commercial vehicle intelligence firm ACT Research’s preliminary numbers, North American truck production in 2020 will drop by 34-35%. Sales will fall by less than 30% over 2019, ACT said. Cowen’s freight research group estimates a 36% production drop.

Truck drivers are seeing myriad headwinds in trucking like a new drug clearinghouse and a damning upswing of insurance rates — along with an increasingly challenging business investment environment.

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Truck drivers are seeing myriad headwinds in trucking like a new drug clearinghouse and a damning upswing of insurance rates — along with an increasingly challenging business investment environment.
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Reuters

As for what truckers large and small are forecasting, it’s a mixed bag – but it leans negative.

Meanwhile, executives from leading public truck companies like Old Dominion Freight Line, Schneider, and U.S. Xpress, have told investors in recent calls to investors that they believe the environment in the first half of 2020 will continue to be challenging. The second half may present an uptick.

Morgan Stanley’s freight transportation team cautioned investors in a Jan. 8 note that truckers will struggle for the next six months. The analysts also warned that 2019’s Q4 results will be one of the “toughest … in recent memory.”

Others disagree. Andrew Lynch, president of Columbus, Ohio-based Zipline Logistics, said political tensions and uncertainty are contributing to a testing environment in 2020.

“I just don’t see demand jumping in any significant way on the back half of the year,” Lynch, whose company employs around 60 people, told Business Insider. “I think that so many people are going to be just clenched up over this election.”

Others haven’t yet spoken out on 2020, as trade and tariff uncertainty clouds their forecasting abilities.

“We see a lot of trade and tariff uncertainty and question marks that are still out there,” Werner Enterprises CEO Derek Leathers said in the company’s most recent earnings call. “Without better resolution on some of those items, it would be increasingly difficult to try to predict what the first half looks like.”

The biggest drag on demand comes from an industrial downturn

The Institute for Supply Management, the banner indicator for manufacturing, said last week that manufacturing dropped to its lowest level in December since June 2009. Manufacturing has contracted for five straight months, as reflected by contracting orders, production, and employment.

That’s partially thanks to President Donald Trump’s trade war with China.

“It’s costing manufacturers – it’s becoming more expensive for them to do business,” Steve Tam, vice president of ACT Research, told Business Insider. “As a result, the amount of investment hasn’t changed and therefore the output has dropped.”

It ties back to a recently-published National Bureau of Economic Research working paper, in which economists found that American businesses and consumers are paying “approximately 100 percent” of the newly-levied import taxes.

As some 71% of the nation’s freight is moved by truck, less manufacturing means there is less work for truck drivers. Rail is also getting slammed by the industrial recession and tariff uncertainty, as The Washington Post reported this week. More than 20,000 rail workers have lost their jobs in the past year alone.

Read more: Truckers voted for Trump in droves. Now they say his trade war is ‘killing’ their ability to make a living.

Meanwhile, retail and new home construction has remained healthy, which gives experts like Vise and Tam reason for some optimism in 2020.

But, coupled with the upcoming election and other political uncertainties, that may not be enough to undo truckers’ hesitancy to hire and invest more.

There’s also an ‘oversupply’ of truck drivers – and more are set to lose their jobs in 2020

Along with a dearth of freight kicked off by the manufacturing turndown, 2019’s trucking recession is credited in part to “over-capacity” on the side of trucking companies. Because 2018 was such a good year, scores of company drivers quit and opened their own businesses to cash in, while pre-existing fleets added to their payrolls.

Brown, for instance, eased up on her home daycare business, while her husband devoted time outside of his work as a director of hiring for an intermodal truck carrier to the burgeoning truck company.

From Jan. 2018 to Jan. 2019, 56,000 new jobs in trucking were added, according to the Bureau of Labor Statistics.

But while hundreds of companies have shuttered in 2019, there hasn’t been a meaningful reduction of the amount of truck drivers who entered the industry. From Jan. to Nov. 2019, a total of 3,700 trucking payrolls were slashed.

“These small fleets going out of business – 100 trucks here and there – I don’t think that really puts a dent in the over-capacity we have,” Lynch said.

Another key headwind comes from the spike in insurance liability rates. Trucking companies across the board have been slapped with so-called “nuclear verdicts” – sometimes resulting in companies have to pay out tens of millions of dollars after a jury finds a truck driver guilty in a wrongful death suit.

The insurance costs may uptick more yet. One Pennsylvania lawmaker is proposing that minimal liability coverages jump by 500%.

These headwinds likely mean more bankruptcies in 2020 – or what many analysts in the trucking industry call “capacity exits.”

“Over time, the more exits that occur, the more that that’s going to tighten capacity and it’s going to make things stronger for the trucking industry,” Vise said.

While job reductions are set to make the industry more healthy in the long-run, the need for fewer truck drivers means that more folks like Brown are set to struggle in 2020.

“As the industry struggles, and more and more large companies go out of business, I see that it really was nothing we did, right or wrong,” Brown told Business Insider. “It really is a shame to see so many companies going under. And I truly believe that if the industry hadn’t taken the turn that it did, we would still be a thriving, growing company.”

Are you employed in the trucking industry? Email rpremack@businessinsider.com.

Read more about the trucking recession:

Thousands of truck drivers lost their jobs in the 2019 trucking ‘bloodbath.’ Here’s why the $800 billion industry dipped into a recession.

A truckload giant just filed for bankruptcy, and it leaves nearly 3,000 truck drivers jobless

America’s largest truck-engine manufacturer just announced 2,000 layoffs – and it’s another sign of the trucking ‘bloodbath’ that’s slamming the $800 billion industry

Truckers can’t pay off their fuel cards – and it’s a ‘sure sign’ that more trucking bankruptcies are coming

‘I don’t know how long I can stay in business’: Truckers’ fears have soared to recession-level highs