Truckers waiting out slow first half of year in hopes of solid demand later
Shippers hoping to capitalize on excess capacity in the trucking industry are advised to act fast as top trucking executives say they expect boom times in the second half of this year.
Meantime, those executives are bracing for a so-so first half followed by what they hope will be a solid second half of 2023.
“It’s softer now than we would like,” Greg Orr, president of CFI, a major truckload carrier that was acquired by Heartland Express in 2022. “The spring push is around the corner. You will see things improve as inventories go down.”
Still, Orr said the “big question mark in my mind is what’s happening in China.” China, the key starting point for many trucking products in the extended worldwide supply chain, is enduring a slowdown. Exports from China fell nearly 10% last December, the third straight month of declines. It’s the largest drop since the coronavirus struck in early 2020.
“Inbound quantities are down, specifically in truckload,” Orr told LM. “Still, I think the back half of year will be a lot better than the first half.”
Instability in demand is the name of the game for the first half, trucking CEOs said.
After several years of extreme volatility, the freight market in 2023 is expected to be anything but stable, they say. The macro environment is uncertain as the Federal Reserve continues to increase interest rates hoping to contain inflationary cost pressures and avoid a recession. Even though unemployment rates are still very low, higher-priced consumable goods are impacting consumers’ spending habits.
“While economic challenges in the freight market will continue to persist over the next few months, we expect the story of 2023 to likely be a ‘tale of two halves,’” Derek Leathers, president, chairman and CEO of Werner Enterprises, the nation’s sixth-largest truckload carrier, told LM. “While lower import activity and moderating industrial production will create a challenging first half of the year, as capacity exits the market given the difficult operating environment, rates will stabilize, and capacity will tighten. We expect supply chain corrections to begin occurring in the second half of the year due to improved economic conditions.”
According to the government, the U.S. economy grew 2.7% in the fourth quarter of 2022. Originally, the estimate was 2.9%.
Economists say while the economy is holding up well so far this year, many analysts still expect a mild recession in the middle of the year. About two in three economists surveyed said they expect a slight downtick in economic activity this year.
But recent strength of consumer spending and the labor market has made projections more optimistic, either for a less-severe recession, or none at all. Retail sales rose a remarkable 3% in January. That comes after declines in November and December, which had led many to believe consumer strength was sapped. Business investment also was stronger than previously thought.
The revisions did not change the annual growth rate for 2022, which remains at 2.1%. According to the U.S. Chamber of Commerce’s analysis, growth in the first quarter this year was tracking slightly positively. The Atlanta Fed’s real-time tracker has the economy growing significantly more—2.5% this quarter.
And it isn’t just trucking companies optimistic about the domestic economic picture.
A.P. Moller-Maersk, the world’s second-largest container shipping group, recently said it is more worried about an economic downturn in China than in the U.S.
“The specter of a recession in the U.S., as well as in Europe, is receding,” Maersk CEO Vincent Clerc told Barron’s recently.
But the pessimistic version is that consumer spending has shifted away from goods to services—which is bad for freight interests. Retail demand is facing headwinds from high inflation and recessionary fears. This makes it a nervous time, especially in the low-barriers-to-entry truckload market.
