Trucking Market Surpasses the US Economy as Capacity Tightens

Strong Tie Insurance December 31, 2020 Commercial Truck Insurance

While the rest of the U.S. economy is still reeling from the effects of COVID-19, the trucking market economy appears to be on an upswing. This upward trajectory is expected to sustain itself through 2021 despite driver shortages. Those in the commercial vehicle and freight economy should see the freight market well above average through the coming year.

On November 19, 2020, the American Trucking Associations’ (ATA) National Accounting & Finance Council held a virtual panel discussion on the state of the freight economy. Here are the highlights of what the three leading economists shared.

Why is the Trucking Industry Continuing to Outperform the Overall U.S. Economy?

Bob Costello, American Trucking Associations’ (ATA) chief economist, Kenny Vieth, president of Americas Commercial Transportation Research Co. (ACT), and Wells Fargo Senior Economist Mark Vitner made up the panel. Here’s what they had to say.

Trucking Market Economy Activity Switching from Services to Goods

Ironically, while much of the world’s economy languishes, the trucking industry has, in some ways, seen an increase in demand from the pandemic. Those in the service industries have born the brunt of social distancing measures and shutdowns aimed at reducing the virus’s spread.

On the other hand, the trucking industry has benefited from the shift to goods. According to Vieth, September saw a 14% increase in durable goods spending and a 7% decline in spending in the services sector.

Durable goods, those that last at least three years and do not have to be purchased frequently, have seen an increase in consumer spending since COVID-19 took hold.

Items such as home and office furnishings, consumer electronics, and appliances fall under this category. All experts agree that this spike is an effect of stay-at-home orders and the growing work-from-home model.

In the last six months, Americans switched their focus from services and experiences to updating their home office, landscaping their backyard, and overall home improvements.

In the U.S., Home Depot’s same-store sales soared 24.6%, while Lowe’s jumped by about 30% in the third quarter (Q3) of 2020.

Digital sales for both of these home improvement stores have skyrocketed. Home Depot sales increased 80% year-over-year while Lowe’s came in at 106%. Both of these success stories benefit the trucking industry and the truck drivers that are delivering the goods.

Make sure your fleet has a comprehensive commercial insurance policy in place, including motor truck cargo policies, in order to protect your company and the products you carry.

E-commerce at Record High Levels

The first six months of 2020 saw consumers spending over $347 billion online with U.S. retailers. That number is up over 30% for the same period last year. Over 50% of direct-to-consumer brands have seen a demand surge since the pandemic struck. This includes home, beauty, electronics, food, and more.

Holiday e-commerce shopping is at a record high. According to the ROI Revolution, for the first time ever, more than 25% of holiday sales will occur online in 2020, an increase of over 26% from 2019.

Another pandemic phenomenon driving demand and freight revenues are the reduced retail inventories. While part of this is due to COVID-19 hoarding, trucking companies are also unable to keep up with demand from the supply side.

A gauge of the overall health of the economy, the Gross Domestic Product (GDP) increased at an annual rate of over 33% in the Q3 of 2020, per the Bureau of Labor Statistics. Keep in mind, this number almost equals the record-setting 32.9% drop in the second quarter.

Residential Construction

Home Construction is another strong market which is especially good for transporters of lumber and other raw materials. Because of this, flatbed companies have experienced a significant uptick. According to DAT Freight & Analytics, flatbed rates are up almost 10% year-over-year with a going rate of $2.46 a mile.

In October, privately-owned housing starts showed a 14.2% increase over last year’s same-month rate.

Big rigs on residential streets can create a hazard. Be sure your commercial truck insurance covers you in the event of an unexpected truck insurance claim.

Grocery Stores

Grocery stores are in need of supplies and products, as is evident by empty shelves. In fact, consumer spending in this arena is above pre-pandemic levels, with sales in September up almost 10% compared to the same period last year.

DAT Freight & Analytics noted a 19% increase year-over-year in refrigeration freight rates, averaging approximately $2.60 per mile.

Spot Rates

The three panelists reported that both e-commerce and the spot market are killing it. The spot market makes up about 20% of the freight markets in the U.S., with contract freight handling the other 80%.

Costello reported, “The spot markets are very strong because there is a lot of spillover freight.” As trucking tightens, shippers rely more on the spot market, as is evident in pricing. From the end of September through the first week of October, van transportation jumped 9 cents to $2.46 per mile.

Early in the pandemic, spot rates increased an average of 85% year-over-year, a number that dropped down to 40% in October.

Truck Capacity

The number of available trucks and drivers, in relation to demand, make up the trucking capacity. The first quarters of 2020 saw a freight recession with several fleets closing due to the pandemic. As spring rolled around, over 88,000 truck drivers had lost their jobs due to collapsed freight volumes and rates.

New drivers are down too, a by-product of the closure or limited hours of the state department of motor vehicle offices, and truck driver schools training 20% to 50% fewer drivers than last year.

The combination led to fewer trucks and a massive driver shortage as the demand for motor carriers increased in the summer months.

Leah Shaver, CEO of the National Transportation Institute, told Transport Topics, “The fleets are telling us because capacity is so tight, they could do four times the amount of work, if only they had enough drivers.”

According to Costello, “Capacity in the industry is as tight as it has been in years.” It looks like, for the foreseeable future, the trucking industry will remain in the spotlight, at least into 2021.

The one caveat is a possible slow down in the economy as the pandemic and unemployment rates continue. If Congress and the White House are unable to come up with another stimulus agreement, an economic slowdown may result in a recession that affects the country as a whole, including trucking companies.

Partner with the Right Commercial Insurance Company

Be sure you’re protecting your businesses against the risk factors associated with tight schedules and new drivers.

We specialize in affordable comprehensive commercial insurance. For a no-obligation quote, contact us at Strong Tie Insurance today.