Freight volume through the first two weeks of July was “sluggish,” and that continues a trend that has been ongoing since February as talks of a freight recession manifest, analysts said.

In a recent update on the transportation industry, senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird, said the volume across all freight modes, including spot truckload, less-than-truckload, rail and international airfreight, has fallen in the second quarter of and into the third quarter, from the same periods in 2018.

Spot rates for dry van truckload fell 18.5% in June, according to DAT Solutions. The decline in rates has put pressure on contract rates for truckload and domestic intermodal pricing, Hartford and Reed said. In P.A.M. Transportation Services’ second-quarter earnings report, President Daniel Cushman said the Tontitown-based carrier has been challenged to retain existing customer rates to cover increased driver wages and other costs. The company has yet to reduce rates on existing lanes, but it’s not been able to add new business at margins similar to 2018, he said.

Contract rates rose in the 2019 bid season, but they face the risk of a decline in the 2020 bid season, during which Hartford and Reed expect rates to fall 5%.

Rail volumes have fallen 4.4% so far in 2019, and Hartford and Reed noted the tough comparisons start to ease in the second half of the year as rail volume rose 4.2% in the third quarter of 2018 and 2.6% in the fourth quarter of 2018. Since January, intermodal volume has fallen 3.5% to 7.69 million intermodal units, according to the Association of American Railroads. In J.B. Hunt Transport Services’ second-quarter earnings report, revenue in the Lowell-based carrier’s intermodal segment fell 1% to $1.15 billion, from the same period in 2018. Volume fell 8% in the second quarter, with transcontinental loads declining 5% and Eastern network volumes down 11%. The intermodal segment accounted for more than half of the company’s total revenue and 64% of income in the second quarter.

Increased levels of inventories have contributed to the soft industrial and intermodal volumes, according to Hartford and Reed. Also, lower temperatures late in the first quarter and throughout the second quarter have impacted volumes. Inventory levels rose at a higher rate than sales in the second quarter, leading to an increase in inventory/sales ratios. The ratio was 1.32 in May, up from 1.28 in 2018, but the May levels were below five-year averages.

Capacity has started to leave the market with the closure of carriers, and net orders of Class 8 trucks, the largest class, have been falling. In a recent report, Tim Denoyer, vice president and senior analyst for ACT Research, said the market is in a freight recession and expects spot rates to continue to fall in the short-term. “The good news is that for the first time in this cycle, we see evidence on the horizon for an eventual bottoming and upturn in spot truckload rates, thanks to low new truck orders and improving capital discipline from the trucking industry,” Denoyer said. “The Truckload Rate Gauge is currently signaling significant overcapacity, favoring shippers in rate negotiations. But based on our expectation for a decline in U.S. Class 8 tractor build rates later in the year, the supply side should begin to improve.”

Donald Broughton, the author of the Cass Freight Index, noted in the June report that the declines in the shipments index have been significant enough to ask, “Will the (second-quarter 2019) GDP be negative?” In June the shipments index fell 5.3%, while the expenditures index rose 0.9%.

With regard to the upcoming peak season, carriers expect a more average season, according to Hartford and Reed. Volume outlooks for the second half of the year have been reduced as demand has been weaker and truckload capacity has limited domestic intermodal demand. But outlooks have been stable.

This article was first found at Talk Business, and written by Jeff Della Rosa

Motor carriers that have long been pleading for more flexibility in the federal government’s truck driver hours-of-service (HOS) rules may finally be getting their wish…maybe.

That was the key takeaway from a recent Associated Press report published last week that stated the United States Department of Transportation is taking steps to “relax” the current HOS rules, which many view as another example of the Trump administration’s de-regulation efforts, which are viewed favorably by business interests, if not safety interests.

This part is perhaps the key working thesis of the AP report, one that clearly is viewed as music to the ears of motor carriers and trucking circles around the United States: “Though no specific proposal has been released, the rules believed to be up for repeal involve daily limits on the number of hours a truck driver can be behind the wheel and a requirement for a 30-minute break during an eight-hour stretch of driving.”

As things currently stand now, the current HOS rules, which took effect in July 2013, are as follows:

• the maximum number of hours a truck driver can work within a week was reduced by 12 hours from 82 to 70; 
• truck drivers cannot drive after working eight hours without first taking a break of at least 30 minutes, and drivers can take the 30-minute break whenever they need rest during the eight-hour window; 
• the final rule retains the current 11-hour daily driving limit (the FMCSA was considering lowering it to 10 hours) and will continue to conduct data analysis and research to further examine any risks associated with the 11 hours of driving time; 
• truckers who maximize their weekly work hours to take at least two nights’ rest when their 24-hour body clock demands sleep the most—from 1:00 a.m. to 5:00 a.m. This rest requirement is part of the rule’s “34-hour restart” provision that allows drivers to restart the clock on their work week by taking at least 34 consecutive hours off-duty. The final rule allows drivers to use the restart provision only once during a seven-day period; and 
• carriers that allow drivers to exceed the 11-hour driving limit by 3 or more hours could be fined $11,000 per offense, and drivers could face civil penalties of up to $2,750 for each offense

While motor carriers yearn for more flexibility in current HOS rules, in order to be more efficient, the report made it clear that safety concerns remain paramount, citing a May report issued by the Federal Motor Carrier Safety Administration (FMCSA), which said there were 4,657 large trucks involved in fatal crashes in 2017, a 10% increase over 2016.  

Those numbers don’t lie, that is obvious. But, at the same time, many carriers view them as so onerous that by following them to the letter of the law can make things unsafe, too. That said, it makes for a difficult situation on all sides.

It is unknown what the clear next steps are until more visibility is provided. But one thing for sure is that this situation is far from over. When the Electronic Logging Device (ELD) mandate took effect in late 2017, it did remove some capacity from the market, but not as much as was originally expected. And with the “boom” year that 2018 was in trucking, capacity was as tight as it has been, maybe ever.

In mid-2019, market conditions have changed as capacity has loosened and demand is not at the heightened levels of a year ago. But things can change quickly, especially in this market, and regulations often play a part in the reasons why. Will they again? We will have to see.

This article was first found at Logistics Management and written by Jeff Berman