Rocky Mountain Trucking LLC

Troy Hawkins, a longtime trucking owner-operator, enjoyed a take-home pay of around $70,000 in 2021. But, this year, he estimates his income has sunk to about $45,000 or $50,000.

It’s not because the Baltimore-based truck driver worked less. The cost of diesel has soared and his per-mile rate just hasn’t kept up. 

Hawkins’ situation isn’t unique. Two reports released Tuesday convey just how bad things got in the trucking industry this fall.

FTR Transportation Intelligence said trucking conditions hit an 18-month low in October 2022. High diesel costs and sinking rates pushed the firm’s Trucking Conditions Index to its lowest point since April 2020, when it hit a record bottom. 

FTR Transportation Intelligence recorded for October 2022 its most negative trucking environment since April 2020. (Source: FTR Transportation Intelligence)

Meanwhile, the American Trucking Associations said its for-hire tonnage index in November experienced its largest monthly decrease since the COVID-19 pandemic. It dropped month over month in October, too. The ATA’s index largely captures contract freight, rather than the more volatile spot market. 

However, the tonnage index still reported an uptick of 0.8% compared to the previous November.

The American Trucking Associations’ Truck Tonnage Index reported a month-over-month decline in November freight volumes. October was also a month-over-month slump. (Source: American Trucking Associations)

Another closely followed index reflected a decline for this fall — but not a crash to pre-pandemic levels. The Cass Transportation Index Report indicated November logged a monthly and annual decline in freight shipments. However, shipments remained elevated from 2018, 2019 and 2020 levels.

Some fleets have been struggling well before this fall. The downturn in spot rates and uptick in diesel prices led some insiders to say trucking was entering a “bloodbath” or a “Great Purge” as early as spring 2022, particularly for small operators

Large public truckers like Knight-Swift and J.B. Hunt began warning of a slump in October. KeyBanc’s logistics analyst team sounded alarms in September of a “trucking winter” where the months leading up to Christmas, which tends to be the hottest time of the year for trucking, would be muted.

Some experts predict that trucking industry conditions will remain challenging through 2023.

“We do not see a month on the horizon as difficult as October was for trucking companies but nor do we expect much for carriers to get excited about,” Avery Vise, vice president of trucking at FTR, said in a Tuesday news release. “The rate environment looks to keep market conditions at least mildly negative into 2024.”

A shaky situation for durable goods, housing

In a news release, ATA chief economist Bob Costello attributed the decline in freight volumes to a slowdown in durable goods and housing. As trucking carries 72% of freight tonnage in the U.S., tracking the transportation mode represents a key way to understand changes in the overall economy.

The Department of Commerce reported Tuesday that single-family homebuilding in the U.S. fell to a 2.5-year low in November, thanks to soaring mortgage rates that some maintain have plunged the housing market into a recession

Overall, construction has declined month over month, according to the Census Bureau but remains elevated from 2022. Public construction, representing government infrastructure investments, saw an uptick month over month.

Inflation-adjusted consumer spending on durable goods declined in the second and third quarters of 2022, according to the Bureau of Economic Analysis. A category breakdown of decreasing goods expenditure underscores a slowdown in the housing economy. Inflation-adjusted spending on major appliances, laundry equipment, window coverings and household item repair all dropped from the year prior. 

A downturn in homebuilding — and purchases for those homes — means less freight for truckers to move, as the decline in the ATA volume index shows. Flatbed truckers, who haul construction materials like lumber, are especially exposed to this. However, the surge in multifamily homebuilding helps offset some of these declines

The FreightWaves Outbound Tender Reject Index measures how many trucking companies are rejecting their contract freight for the spot market, indicating a hot market for trucking. In the flatbed space, this index remains elevated from pre-pandemic conditions. 

However, it has largely declined since March 2022, when the Federal Reserve began increasing its funds rate. This resulted in higher mortgage rates and a slowdown in the housing market. 

The FreightWaves Flatbed Outbound Tender Reject Index has declined sharply from its highs in early 2022 but remains elevated from pre-pandemic norms. (Source: FreightWaves SONAR) 

The decline in U.S. imports also explains why trucking volumes have sunk. The volume of container imports at American ports in November plummeted by 19.4% from the previous year, according to data from Descartes Datamyne.

This is particularly chilling for the trucking industry’s dry van sector, which moves durable goods that don’t require temperature control. According to the FreightWaves National Truckload Index, contract rates for dry van truck movements are down 4% compared to the previous year, while the smaller and more volatile spot market has sunk 23% over the same period. 

Spot rates (green) have sunk 23% compared to the same period last year, while contract rates (blue) have declined 4%. (Source: FreightWaves SONAR) 

Owner-operators and small trucking fleets especially challenged amid 2022 trucking recession 

At the same time that trucking rates have sunk, the cost of diesel has considerably increased. 

The retail price of diesel (blue) has increased more than the rack price of diesel (orange). Small trucking firms are more likely to pay the retail price of diesel. (Source: FreightWaves SONAR) 

However, this uptick hasn’t been equally shouldered by large and small trucking fleets. That’s because trucking companies with more employees can secure fuel discounts because they are buying in bulk. 

As longtime fuel expert Scott Berhang explained to FreightWaves, large trucking firms pay a small premium on the “rack price” of diesel, which is always much lower than the retail price advertised outside of a gas station. The trucking fleets and truck stops negotiate whatever premium is paid on the rack price. 

Owner-operators like Hawkins of Maryland are more likely to pay the retail price. 

“Those costs have disproportionately hurt smaller carriers recently, and improvements in those situations likewise will not help larger carriers as much as smaller ones,” Vise said. 

The spread between rack and retail prices has increased this year, putting more pressure on small truckers. As of Dec. 20, nationwide truck stop fuel prices were 61% higher than nationwide rack prices — a spread of $1.83. At this time last year, truck stop fuel was 46% more expensive than rack — a spread of $1.13. 

“Rack prices move very quickly, whereas retail prices tend to lag far behind,” Berhang said. 

Retail prices are often individually set by the gas station owner, so they are more likely to post the highest possible price that will still keep customers coming in. Meanwhile, rack prices are a much more volatile reflection of the price that refineries sell to wholesalers. Gas stations will often wait to slash prices if rack prices dip, but they will respond quickly to an increase in rack prices.

That’s relieving news for the large trucking fleets that are more likely to enjoy fuel costs close to the rack price, but that puts pressure on owner-operators. 

Following this year’s downturn, Hawkins said he is going to quit the trucking world and go back to a job in human resources — even though he prefers the freedom of the open road. 

“I don’t think the rates have ever kept up with our fuel cost,” Hawkins said of 2022’s trucking conditions. “You’re still behind with the fuel cost being so exorbitant.” 

Do you work in the trucking industry? Email the author with your experience. And don’t forget to subscribe to MODES for your weekly dose of logistics insights. 

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