FTR’s Trucking Conditions Index for March showed its first negative reading in several years, reflecting a softening environment for carriers.
The March TCI reading fell to -1.18 driven by easing freight rates and sluggish, though still positive, demand. Active truck utilization and the truckload rate have also continued to ease. The weakness in truckload rates was attributed mostly to spot rates, but FTR also found that the contract rate outlook has turned slightly negative.
FTR’s outlook for loadings growth has been revised downward from previous forecasts with year-over-year growth now expected to be under 2%.
“The trucking industry has essentially returned to neutral conditions as deterioration in most market factors are offsetting continued solid, but not robust, freight demand,” said Avery Vise, vice president of trucking for FTR. “We generally expect this balance to continue into 2020, but TCI readings could turn positive or negative month to month based on relatively minor shifts in demand, utilization, rates, or costs.”
This trend was also spotted by analysts at ACT Research who noted in the May Freight Forecast that slowing freight and increased tractor sales will likely have a downward effect on freight rates.
“Freight remains soft, as expected, and while we see reasons for recovery in the second half of 2019, escalating trade tensions raise the risk of freight recession,” said Tim Denoyer, ACT Research’s vice president and senior analyst. “Class 8 tractor retail sales are on fire, adding capacity to the market at an unfortunate time for truckers. Shippers are increasingly targeting freight cost savings, likely emboldened by attractive rates in the spot market.”
ACT Research found that dry van truckload spot rates and net fuel have fallen nearly 19% year-over-year in April and more than 3% from March, twice the historical average seasonal drop for April.
While new trucks may be selling well, Class 8 truck orders continued at a snail’s pace. In April, FTR tracked truck orders at just 16,400 units for the month, 52% below April 2018’s numbers.
While orders are low, that doesn’t mean the demand is not. Fleets are continuing to search for open build slots in the 2019 production schedule, according to FTR. Backlogs are fluid with orders being rescheduled, often opening up build slots in the near term. FTR expects this pattern to continue until ordering for 2020 begins.
“Economic growth is expected to moderate soon, slowing down the freight markets,” said Don Ake, FTR vice president of commercial vehicles. “However, currently there is still a need to replace older trucks and also get more new trucks on the road.”
Medium-duty Class 5-7 truck orders continued on at a positive rate, benefiting from underlying strength in the consumer economy, according to ACT Research. ACT tracked 23,100 Class 5-7 truck orders for April, down just 6.8% from the previous year and up 12% from March.