During the COVID-19 pandemic, the trucking and logistics industries reached record capacity with a surge in United States trucking fleets, but now they are feeling squeezed as freight numbers return to pre-shutdown levels.
Craig Fuller, president and CEO of the FreightWaves supply chain media company, describes the current market as worse than the financial crisis of 2007-08 and anticipates that the worst is yet to come. From January 2019 to May 2023, the number of trucking fleets, large and small, in the United States jumped from 209,000 to 318,000, he says -- emphasizing that figure is companies, not trucks.
"That's insane," he says. "The bubble was caused by too much spending -- $6 trillion in government spending during COVID that was intended to stem off the crisis.
"When we shut down in March 2020, consumers went out and bought consumer goods. You had all this demand. There weren't enough trucks on the roads, so that created an environment where trucking rates were high. Everybody heard how much money you could make, and got into the industry, flooding the freight market for capacity."
But, what goes up must come down. The problem now, he says, is that freight has gone back to 2019 numbers -- which means there are a lot more trucks vying for the same freight.
"Ultimately, every company in the space is facing the same headwinds. Because of that, they're going to have to reduce staffing and trim costs to survive," says Fuller, who expects this downturn could last anywhere from 18 to 24 months.
"There will be a lot of bankruptcies. The economy will, at some point, recover -- then the market will be under capacity."
Thom Albrecht is the chief financial officer and chief revenue officer at Reliance Partners, an insurance agency serving the transportation and logistics sectors. He also spent 28 years as a transportation analyst on Wall Street before moving to Chattanooga.
"Everyone knew the party was going to end, and it did, and now the freight world is in kind of a painful hangover period," he says. "Think of all the stories we heard about the supply chain during the pandemic -- ships in the ports waiting days and weeks to unload.
"So when you're in the middle of that ... I think the industry got caught up in believing this was the 'new normal,' when it really wasn't. The world was in a 'five alarm fire,' and the industry got caught up in trying to provide solutions, but lost sight of the normal cycles."
Albrecht says he sees three phases in this cycle: the goods boom created by the pandemic; the shift from goods to services; and finally, the decline in consumer spending.
Wages have been trailing inflation since 2021, he says. Initially, spending persisted due to people relying on credit cards and savings. But today, credit card debt is at its highest in 20 years; savings are down from a national average of 20% to around 2%; and consumers, in general, are losing buying power.
"Initially, we began hearing about retailers who were saying they had the wrong type of inventory," he says. "Target, for example, acknowledged they didn't have enough in terms of luggage and travel, but had too much in home electronics. Walmart said they saw a shift from name brand to private labels, which was an early warning that consumers were feeling stretched.
"These are little canaries signaling that there were problems in the coal mine."
The good news, he says, is that there are signs that the market is beginning to level out. Albrecht also tracks data for the 10 largest ports in the country, and for the first time since summer of 2021, the industry has seen a sequential rise in inbound loading containers.
"Not by a lot," he says. "But that's a small sign that we're probably near the bottom on this nasty slump."
"It's my sense that, across the board, truckers are going to be acknowledging by Labor Day that this downturn will be close to normalizing -- probably back to normal by 2024. Even if the broader economy is in a recession, it's my guess that the trucking industry will begin to see signs of recovery by spring of 2024."
The transportation industry played a prominent role in creating the Chattanooga we know today, says Frank Butler, a Frank W. McDonald professor of management at the University of Tennessee at Chattanooga (UTC) and a strategic management professor with the Gary W. Rollins School of Business. We have railways, water transportation and a central location at the crossroads of I-75 and I-24; and so when the transportation industry faces challenges, it affects many people.
"There's a lot going on right now," he says. "Interest rates are up, which is putting a stall on the economy. People are buying less, generally. And we're in a situation where companies built up inventory throughout the pandemic, and they need to clear those out, so they're not ordering as much and less needs to be shipped.
"And with those different pressures, we're seeing a slowdown in the industry."
Butler also points out geo-political issues that caused disruptions to the U.S. supply chain, such as sporadic societal shutdowns in China due to their zero-tolerance COVID policy, and war in the Ukraine.
Part of what the industry is experiencing right now is just "the nature of the beast," says Butler. Trucking and logistics are historically known to be cyclical industries. But one way companies can protect themselves from the "boom or bust" cycle, he says, is to diversify into related businesses such as truck leasing services and insurance.
"Most of the bigger companies will weather the storm fairly easily. Those that are publicly traded have the ability to get equity, and they can sell additional shares of stock," he says. "Smaller companies will mostly get the hardest in these cases -- they have to rely on brokerage houses to find them freight to ship. But if they have enough cash to weather the storm, they will probably be OK.
"Everybody gets hit in this kind of situation. It's mostly a question of who is in the best position to ride it out until the market resets."
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Photography by Olivia Ross / Craig Fuller, CEO and founder of FreightWaves, discusses Chattanooga's transportation industry at The Company Labs inaugural CO.MOBILITY Summit at UTC earlier this year.
Photography courtesy University of Tennessee at Chattanooga / Frank Butler
Photography courtesy of Reliance Partners / Thom Albrecht