The trucking bloodbath isn’t coming for everyone

Both companies service mega-retailers. But Hirschbach truck drivers, who are employees, only run freight contracted with relationships so deep Pinchuk called them “marriages.” Zipline works mostly with owner-operators who do a mix of contract and spot business. 

The indicators are pointing to a K-shaped market for the trucking industry. Large trucking companies, which have long-standing contracts with their clients, will be able to weather the crash in spot market rates — even as contract rates begin to dip. Meanwhile, the small-time truck drivers who have flooded the market since the pandemic began are set to struggle. 

Steve Urbish, a New Jersey-based dispatcher who works mostly with owner-operators, is already seeing declining rates pummel his drivers. A dry van job running bottled water from the Philadelphia suburbs to the warehouse giant of Carlisle, Pennsylvania, paid $1,200 last December. Starting next month, that same job will pay $756. 

“[Rates have] really taken a hit in the past six to eight weeks,” Urbish told FreightWaves. 

In 2019, at my previous reporting gig at Business Insider, I wrote about how truck drivers had dubbed a freight recession the “trucking bloodbath.” Three years later, indicators are pointing to yet another bloodbath. Based on its biweekly survey of shippers, Bank of America told investors in an April 22 note that demand for truckers is “near recession levels.”

One graph from a Tuesday note from Susquehanna reveals we’re at an inflection point in trucking. For 21 consecutive months, starting in May 2020, dry van spot rates were positive year-over-year. They turned negative in April 2022. The last negative inflection was September 2018. “Recent history suggest[s] they’ll stay negative for one to two years,” Bascome Majors, senior analyst at Susquehanna, wrote.

The little guys are the ones most exposed to the spot market — and they’re the ones who are already seeing a hit to their businesses. Big carriers will weather this downturn. Welcome to the K-shaped bloodbath.

Why big fleets will be OK amid a trucking recession

First-quarter earnings were mostly peachy for the large, public trucking companies that employ thousands, or tens of thousands, of truckers. While the Dow Jones Industrial Average was down 2% on Thursday compared to last week, the Dow Jones U.S. Trucking Index was up 3% over the same time period.

Some analysts seem to agree with the market that conditions for large trucking companies are still positive. Susquehanna recently upgraded truckers like J.B. Hunt and Werner from “neutral” to “positive” in the Tuesday note. (That note was aptly titled, “Come on in, the Bloodbath’s Fine.”) Last month, Susquehanna upgraded Knight-Swift and Schneider. 

Those big truckers were cheery on recent calls to investors that they’d weather the spot market downturn.

“[A] lot of what you’re hearing in the market is in the spot market, so small carrier capacity for the most part, and I think that’s what’s causing a lot of conversation,” said Shelley Simpson, who is J.B. Hunt’s chief commercial officer and executive vice president of people and human resources, on an April 18 earnings call. 

Big carriers don’t have to chase spot loads to make ends meet. Their customers also aren’t wont to hit them with dramatic rate cuts — just as those trucking companies didn’t jack up prices amid the spot rate explosion through late 2020 and 2021.

In reference to the rate plunge seen on load boards like Truckstop.com or DAT, Knight-Swift CEO Dave Jackson said on an April 20 earnings call, “We don’t participate. We don’t get those kinds of spot rates through brokers. And so in that world, we think that you’ll see some seasonality, which is part of what we’ve seen already.”

Having survived decades of economic chaos, these companies typically endure amid trucking recessions. However, some big carriers did face ruin in the 2019 bloodbath.

Celadon, which generated $1 billion in revenue and employed more than 3,200 truck drivers as recently as 2015, filed for bankruptcy in December 2019. It was the largest bankruptcy in truckload history. Earlier that year, New England Motor Freight, which had operated more than 100 years, filed for bankruptcy. Hundreds of other trucking companies large and small went bankrupt in 2019 as well; the first three-quarters of 2019 saw three times as many bankruptcies as the year prior, according to Broughton Capital.

The little guy won’t be as lucky

Indicators are clear that demand is softening. U.S. gross domestic product fell 1.4% in the first quarter of 2022, the Commerce Department reported on Thursday. Inflation jumped 8.8% in March, the largest increase year-over-year since May 1981. Online shopping is slumping, after two years of runaway growth, while travel is trending upward; that means fewer e-commerce hauls for truck drivers. Even the red-hot housing market is showing signs of a cooldown; March saw its lowest new U.S. home sales in four months. 

Maurice Evans, who is an owner-operator based out of Raleigh, North Carolina, is already seeing the trucking recession hit his business, which he runs mostly on the spot market. For most of 2021, Evans was earning around $5,000 to $7,000 a week as a truck driver. Now, he’s pulling in $4,000 to $5,000. 

Evans’ operating costs have only increased. He went from spending $1,000 a week on fuel to $1,500. Other monthly fixed costs include insurance ($1,400), phone bill ($100), a virtual office ($100) and load boards ($100). Then there’s the inevitable big maintenance bills, like the $9,000 Evans had to shell out last month for a broken turbo or the $800 last week for new headlights. Tires have to be replaced twice a year, and he said it’s about $300 per tire. An oil change every other month costs another $500.

“Trucking isn’t for the faint of heart,” Evans said. “You need to be able to lose everything every time you leave the house.”

And he’s one of the lucky ones. 

Unlike many owner-operators, Evans owns his truck, saving him thousands per month in lease payments. The increase we’ve seen in used truck prices is “unprecedented,” as FreightWaves CEO Craig Fuller wrote earlier this month:

According to ACT data, a 3-year-old used truck could have been purchased for $69,000 in 2019. In early March 2022, the price of a 3-year-old truck had nearly doubled — to $136,000.

There is an unusual number of owner-operators like Evans on the road right now, trying to piece together how to keep their business running. 

Those carriers were buying — often financed by debt — unusually expensive trucks. Paying off those loans was easy when rates were high and fuel was cheap.

“They’re the ones who are really going to take it on the chin first because they’re the ones with the most debt associated with their operators,” Evans said.

“I think you’ve seen a tremendous amount of small carrier capacity coming into the market over the last 18 months to two years,” Joe Beacom, Landstar vice president and chief safety and operations officer, said on an April 21 earnings call. “I think as we’ve seen in the past, you’ll see decreased utilization and then you’ll see some of those trucks leave the market.”

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