What’s Behind All the Trucking Company Closures?
Estimated reading time: 2 minutes
This has been a tough year for the trucking industry. More than 2,500 truck drivers have lost their jobs in what some are calling a “bloodbath,” primarily affecting smaller companies and owner operators. Pricing pressure is largely to blame, but the underlying cause is less straightforward.
Trucking Closures by the Numbers
Here’s a look at some of the trucking companies that closed their doors in 2019:
Many of the companies that shuttered operations did so abruptly, some due to bankruptcy and others trying to avoid it. It may be difficult to process this scenario given the capacity constraints, driver shortages, and booming freight volumes of 2018. What made the pendulum swing in the other direction?
One Cause, Many Factors
Many trucking companies that closed in 2019 cited low shipping rates as a primary cause of their demise (FreightWaves). What caused those lower rates is not fully understood, except that several factors contributed, including:
- Changes in Supply and Demand. When shipping volumes rise as they did in 2018, companies must buy more trucks and employ more drivers, often at higher wages. But when shipping volumes fall again, companies are left with underused trucks and drivers for which they must continue to pay. This overcapacity creates more competition in the marketplace and drives shipping rates down. By June 2019, available capacity had increased by 29.9 percent (Business Insider).
- A Relatively Weaker Economy. Following an unusually strong 2018, retailers and manufacturers are shipping less. During the first half of 2019, truckload volume fell by 50.3 percent and spot market rates dropped by 18.5 percent year over year. Growth in consumer spending also remained flat (Business Insider).
- Delayed Spring and Summer. Early 2019 brought blizzards, record-breaking low temperatures, and lingering winter conditions to the Midwest and east coast. The extreme weather delayed or canceled deliveries, added costs, and generally disrupted the transportation industry (Business Insider).
- Uncertainty Around Tariffs. The ongoing trade war with China has created uncertainty in shipping. J.B. Hunt reported a 20 percent decline in volume from the West Coast as a result of shippers who anticipated tariffs going into effect this spring. CSX Transportation also reported its first decline in revenue since 2016 (Business Insider).
Trucking is often a primary indicator of where the larger economy is headed. A slump in trucking can mean that an economic downturn—or even a recession—may be on the horizon. There are some glimmers of hope, however. Trucking employment is on the rise with the industry adding 11,700 jobs in the first half of 2019, and we saw a rally in trucking stocks a few weeks ago. Still, overcapacity is a problem right now. Until the supply of trucks shrinks to meet load volumes, carriers will continue to feel the pinch.
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