Jul 11, 2023

The Future of Trucking as it Enters Late Down Cycle

The trucking industry has been a vital component of the global economy, moving goods and products across the country and around the world.

However, as the industry enters a late down cycle, there are several challenges that trucking companies will need to address in order to remain competitive and successful.

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With technological advancements and changing consumer preferences, the future of trucking is set to undergo a major transformation in the coming years.

As such, it is critical for trucking companies to keep a close eye on the trends that are shaping the industry and adapt accordingly. In this blog post, we will explore the future of trucking and the key drivers that are shaping its trajectory based on actual reports as of July 2023.

From the rise of automation and electrification to the shift towards sustainable logistics and the impact of changing consumer behavior, we will examine the trends and factors that will shape the future of the trucking industry.

Let's explore the challenges that companies in the industry will face and the strategies they can adopt to remain competitive in an increasingly complex and dynamic down cycle.

Trucking Industry Late Down Cycle as of July 2023

The current state of the trucking industry is characterized by a gradual downturn in the freight cycle.

Despite this, the industry has been able to achieve a degree of equilibrium through positive destocking trends, which have helped to offset the effects of low demand.

According to Andy Dyer, the president of transportation management at one popular logistics company, the industry has not yet reached its lowest point. While the rate of price erosion and demand decrease has slowed, there is still work to be done to stabilize the industry.

Basically, the trucking industry is in a state of transition and requires careful analysis to navigate the challenges it currently faces.

Dyer identified a deceleration in economic activity commencing in the latter half of the second quarter, which he attributed to a slight increase in spot rates.

He acknowledged that the transportation industry has observed favorable trends in the reduction of inventories and an upswing in consumer demand. However, he emphasized that the current expansion in consumer spending has been primarily concentrated in the service sector.

The global pandemic has resulted in a significant shift in consumer spending patterns, as observed by Dyer. The demand for goods and products saw an unparalleled increase due to the lack of access to services during the pandemic.

However, as the situation improves, people are now increasingly diverting their expenses towards services. It is evident from the current scenario in the airline, rental car, and hotel industries. These industries have witnessed a significant uptick in consumer demand, indicating a shift in consumer preferences.

According to Dyer, the anticipated seasonal trends, such as the produce season, have not performed as well as projected. He opines that until there is an improvement in demand, the pricing of goods will continue to decline. Furthermore, he anticipates that the transportation industry may soon face an increase in fleet closures. Average efficiency up to peak efficiency is still the goal.

TD Cowen analyst Jason Seidl expresses his belief that the demand for goods is not likely to witness any significant growth. He adds that the current state of the freight industry is indicative of a recession, with a growing number of carriers exiting the market each month. Seidl also observes that recent developments are reflective of typical seasonal fluctuations. Expect more breaking news in the months to come.

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Research by ACT Regarding the Late Down Cycle

According to a recent report by ACT Research, the for-hire trucking market is undergoing a rebalancing phase as the freight cycle approaches a turning point. The report highlights positive progress in freight volumes, rates, and supply-demand balance in the month of May. The trucking volume index also saw a substantial increase from 37.7 to 49.4 points, attributed to the slowing of destocking activities.

Despite the soft demand, Tim Denoyer, the Vice President and Senior Analyst at ACT, suggests that the reduced destocking activities may be contributing to the increase in available freight for hauling. While the volumes remain slightly contracted, the significant improvement observed in the fleet survey indicates that the freight downturn is nearing its end.

Seidl posits that the downturn reached its nadir during the second quarter, as evidenced by the return to typical seasonal patterns and a rise in port activity. Despite these encouraging developments, he maintains a cautious outlook for the remainder of the year, anticipating only modest improvements in each subsequent quarter.

Seidl further notes that destocking efforts continue to impact the market, albeit at a slow pace, and while some entities may be nearing normalization, sustained consumer demand will ultimately dictate the pace of recovery. Indeed, the destocking trend had a significant impact on the truckload marketplace in late 2020, and the industry will continue to monitor this dynamic as they navigate the ongoing challenges of the post-pandemic landscape.

Perspective of an E-commerce Company in Relation to the Trucking and Transportation Industry Down Cycle

According to Josh Tsui, the CEO of a popular e-commerce service brand, the pandemic has had a significant impact on the trucking industry, which can be categorized into three distinct phases - initial disruption, recovery, and transformation. Specifically, the transformation phase has been characterized by major changes in consumer behavior, technology, and supply chain operations.

Tsui asserts that the trucking industry is currently experiencing this transformation phase, which remains ongoing. This phase has not only affected the trucking sector but has also impacted all aspects of the supply chain. Even a year after the pandemic's onset, there are still continuous efforts to adapt to the changes in consumer behavior.

According to Tsui, it is his professional opinion that the trucking industry has successfully extricated itself from the pandemic's effects approximately one year ago. Initially, the industry faced significant challenges during its recovery process. However, in the past six months, each company within the supply chain has diligently endeavored to comprehend the alterations that have transpired and innovatively adapt accordingly. Tsui is of the view that companies are progressively developing an improved understanding of the new normal.

Moreover, he said that the recent macroeconomic shifts appear to be stabilizing. For a considerable period of time, there was a pervasive concern about the onset of a recession. However, current indications suggest that we may narrowly avoid a full-blown economic downturn. In the event that we do experience some form of economic contraction, it is likely that we will emerge from it in short order. As such, it is imperative that we begin to acclimate ourselves to this new economic landscape and adjust our strategies accordingly.

Do you want to learn more? Check out our deep-dive article about the trucking trends here.

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If you are looking for more information about drug and alcohol testing as a truck driver, visit LabWorks USA. Our DOT Consortium's friendly team will be more than happy to discuss any concerns you may have and work with you to ensure you are always fully compliant specially with random DOT drug and alcohol testing pre-employment testing. Moreover, if you need help with FMCSA Clearinghouse registration, we can further support you.