Yes, 2020 was literally a roller coaster. The fluctuations were disturbing and impactful. Unprecedented stay-at-home orders crippled state economies across the nation, curbed consumer spending, disrupted supply chains, bankrupted large and small trucking companies, and sidelined thousands of truckers.
The nation had never experienced anything like it. And, neither had the transportation industry.
In April, a grim picture emerged of the carnage caused by state lockdowns (see chart below). The American Trucking Association (ATA) For-Hire Truck Tonnage index plunged 12.2% in April, the largest decline in 26 years! Only a labor strike in 1994 produced a larger drop. Compared to April 2019, the index declined 11.3%, the largest year-over-year contraction since 2009.
The index measures the gross tonnage of freight transported by carriers in the nation for a given month. Analsts often use the index as a proxy for the health of the economy as nearly 75 percent of all freight tonnage is via truck.
Clearly, the trucking industry found itself in uncharted waters.
Spot market rates for dry van freight showed an equally distrubing drop. Long a barometer of the health of the freight market, rates are national averages expressed in dollars per mile. Moving into 2020, spot rates had cooled considerably from an extraordinary run up in 2018. Then, in April 2020, the bottom dropped out – see chart below.
Spot rates decrease when supply exceeds demand. Profit margins then tighten and cash reserves diminish. The intense uncertainity preciptated by the lockdowns pressed demand downwards and accelerating the rate decline. The dramatic reduction proved to much for many large and small carriers that closed their operations.
Indeed, at that point, things appeared bleak. How much further would tonnage and rates drop? What about consumer spending? No one knew for certain.
In late spring, President Trump urged states to reopen and many did so – beginning a long road to normal patterns of business. At the same time, federal funding from the CARES Act started to trickle out to the state and local governments, supplementing unemmployment insurance, food assistance, and sick leave banks. This provided a floor for workers especially hard-hit by pandemic lockdowns.
Direct payments of $1,200 to individuals and $2,400 to married couples were also distributed as well as millions of dollars for struggling businesses. The influx facilitated business activity across the board, helping stabilze consumer demand and injecting a badly needed boost of confidence.
The trucking sector responded.
In July, the Trucking Tonnage Index reached its highest point since March. It then dipped once again in August and September, then increased once more and by December reached pre-pandemic levels. Demember in fact marked the first month year-over-year increase since March. It also surpassed December 2019.
In an early January ATA press release, Chief Economist Bob Costello observed, “Freight continues to be helped by strong consumption, a retail inventory restrocking, and robust single-family home construction. With the stimulus checks recently issued and with a strong possiblity of more in the near future, I would expect truck freight to continue rising.”
However, overall, compared to 2019, tonnage was down 3.3%. But in light of the sharp drops witnessed in the spring, and a seesaw summer, the industry’s bounceback was a remarkable achievement – see the distinctive W shaped recovery below.
Even more dramatic, by year’s end spot rates surpassed pre-pandemic levels – by notable margins, and reached record highs. Once more, considering events, an amazing turn-around.
Noteworthy, the massive improvement in spot rates are luring smaller carriers back in. Nearly 31,000 firms obtained motor-carrier authority from July through the end of November. Every month set a record for newly created motor carriers. 2020 in fact set a new record with 55,000 registrations, 25% more than 2018.
The elevation of rates also produced a notable increase in Class 8 truck orders. Since 2000, an average of 192,000 new Class 8 truck were sold each year. In 2020, 195,728 were sold, nearly a 2% improvement over the average – and most trucks were purchased in the 4th quarter.
The roller-coaster ride of 2020 demonstrates a resilient and hardworking trucking industry, fully capable of adopting quickly to difficult circumstances. The four charts presented underscore the historical highs that can be recaptured after devasting lows.
No one of course wants to experience the turbulence and turmoil of last spring and summer. Yet, ironically, the trucking industry is now well positioned to be the leading force in the U.S. economic recovery.
Politicans across the nation should recognize this fact and take direct steps to show Americans how truly important the industry is to their everyday lives. iLevel Road Scholar suggests a good first step would be President Biden immediately advancing truckers to the front of the vaccine line.