Heavy Duty Trucking, October 2019

HDT OCTOBER 2019 22 WWW TRUCKINGINFO COM O ften in the English language we use key words to indicate meaning beyond the actual definition of the term For instance when I speak with analysts or economists and they tell me they are adjusting or tweaking their forecast it almost always means lowering Nobody ever says the word lowering yet thats almost always what they mean When economists raise their outlooks they actually use the word raise Similarly when I speak with freight companies about activity over the past two months I am often told that overall things are feeling better Retail data has improved spot rates have arrested their rates of decline bankruptcies are slowing the increase in industry capacity and truckers are hopeful that third quarter results will mark the bottom in terms of incremental weakness However it is important to note that better and less bad are two different things and I believe that when speaking about what is going on the current environment less bad is more accurate To me better implies improved For example if we made 100 last week and made 102 this week I made more money so my situation is improving or better Less bad is something different entirely it implies that the environment is still getting worse but at a less aggressive rate Look at the spot rates chart The difference between last years high spot rates and this years average spot rates has declined from a negative spread of 54 cents to about 35 cents since June But thats because spot rates a year ago fell from a seasonal peak of 277 to about 247 or about 30 cents In comparison this years spot rate seasonal decline fell from a peak of about 223 to 212 or about 11 cents In other words if not for the optics of the prior year we would say that spot rates are 11 cents worse than in June To say that the market is better is misleading So over the past two months carriers and shippers are telling me that the environment is better Yet both spot and contract freight rates are lower than they were at the end of June Freight tonnage is not better and in some cases a little worse Fuel costs and driver costs are higher on a year over year basis as are insurance costs so profits are continuing to decline Inventories showed some signs of moderating last month declining for a growth rate of 52 to 49 but I highlight still growing at 49 in a 2 ish real GDP environment and a negative freight environment In other words I would call all of the above data less bad not necessarily better Last months report on second quarter financial results for publicly traded motor carriers showed them to be generally worse than trend with many managements tempering expectations for 2019 and even for 2020 Where we saw the greatest incremental deterioration was in over the road truckload realized pricing as some shippers have been under shipping contractual freight so they can use currently cheaper spot truck markets It would appear that third quarter results might not be better than second quarter although to fleets it may seem better compared to their prior expectations its really less bad implying continued deterioration We believe the inventory overhang on truckers will remain until winter with capital expenditure plans likely to continue to moderate through year end as margins continue to deteriorate It is indeed getting less bad but make no mistake it is not yet getting better Next month Economic tea leaves Jeff has been a recognized trucking and transportation authority for almost 30 years most notably heading freight transportation research for Merrill Lynch and today runs transportation consulting firm Tahoe Ventures He can be reached at jkauffman@ truckinginfo com The difference between last years high spot rates and this years average has dropped but this years seasonal decline was less Better or less bad SOURCE TRUCKSTOP COM Behindthenumbers UNDERSTANDING TRUCKINGS ECONOMIC INDICATORS Jeffrey Kauffman Contributing Economic Analyst jkauffman@ truckinginfo com Historical Truck Spot Rates All Equipment Types Including Fuel Surcharge