Many experts are noting that there is a slowdown coming for global trade into 2020. The good news is that it isn’t at recession levels. But the US and Canadian economies are expected to grow in 2020 by less than 2%; not a robust amount by any means.
A reliable and valued economic indicator, known as the Cass Freight Index accurately measures trends in North American shipping activity; it’s based on $28 billion in paid freight expenses for the Cass customer base of hundreds of large shippers. As you can see in the graph below, North American freight volumes are in the negative year over year for 11th straight month.
(The Index point for each subsequent month represents that month’s volume in relation to the January 1990 baseline of 1.00)
So, what does this mean for the trucking industry? Here’s the top areas that will be affected by the slow economic growth predicted for 2020.:
We all know that capacity crunch was the topic of 2018, and that it loosened up into 2019 with more drivers/trucks becoming available. However, experts report that logistics costs as a percentage of GDP have been increasing, largely due to road congestion. Poorly maintained roads and traffic congestion create wear and tear on vehicles, waste fuel and increase emissions, create additional stress for drivers, and negatively impact industry productivity
Couple this with an increase in freight demand, and you will see that more trucks are required to move the same amount of freight, but more capacity is also needed long-term.
They key issue with freight demand is tariffs, which are universally known to be bad for growth. Although freight demand will grow due to predictions for strong consumer spending and retail sales, tariffs threaten to reduce the amount of international freight shipped into 2020. It is a difficult situation especially for truckload carriers as many shipments are bound for international markets. So, the trucking industry will be keeping a close eye on the unfolding trade situations with China and the United States-Mexico-Canada Agreement (USMCA). The impact of these tariff changes and subsequent retaliatory tariffs is increasingly discussed as an element that is shaping supply chains and influencing the movement of freight for 2020.
Reports anticipate that rates will rise modestly in 2020, due to an increase in operating costs. Additionally, most shippers are getting reductions in contract rates from carriers, although many carriers saw a 18-24% rate increases last year.
During 2019, the pricing that truckers worked with experienced a significant decline because of the shortage of jobs. Trucking companies started to charge less for fear of not being able to get work at all. In 2020, the pricing that trucking companies are likely to change, either for the better or worse. If the market continues to experience a decline, trucking companies are going to have to lower their prices even further. If the industry experiences steady growth, the prices can rise back up to what they were before the decline. Either way, there is no doubt that there are going to be significant changes to the pricing when it comes to the trucking services that companies offer.