The latest report on freight transported showed another decline, but still, the American Trucking Associations (ATA) doesn\u2019t believe that the economy will slip into a recession. Fortunately, despite the volatility, the ATA\u2019s last few monthly truck tonnage reports are still trending upward. The ATA\u2019s tonnage data is particularly dominated by contract freight, which has been performing much better than the spot market. In fact, compared to the same time one year ago, the tonnage index is up 4.2% year-to-date. <\/p>\n\n\n\n
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Yet, other analysts are quick to dismiss tonnage and\nconsumer data, whether it be because of weather, flooding, an inventory\nsell-off, or more. Has the American consumer lived up to expectations\nthroughout the trade war and other economic headwinds? Whether it be trade\nvisibility or a slowing industrial or manufacturing sector, there is plenty of\nuncertainty in the transportation sector. <\/p>\n\n\n\n
Corporate profits are also a mixed bag. Corporate profits\nand industrial production are key leading indicators of economic activity. By\nsimply looking at adjusted tonnage rates, many analysts can determine the\nprecise state of the economy. Meanwhile, adjusted rail car tonnage has declined\nsuccessively.<\/p>\n\n\n\n
As a result, there is a belief that freight volumes\nundergrow economic activity for at least the first six months of 2020. With\nfirst quarter economic growth expected to be between 1.5% and 2.0%, trucking\nand transportation companies hope to see inventory growth come more in line\nwith actual economic growth. <\/p>\n\n\n\n
It is also important to consider that the transportation sector\nis about more than just trucking. The current rail data shows that rail\ntransport is 6% in the red and still falling. In fact, overall sector weakness\nhas broadened from 11 to 14 commodity groups as we move into the last quarter.\nIn the event of a profits recession, where hiring slows and capital additions\nare delayed, you can expect contractions in the broader sector.<\/p>\n\n\n\n
Still, could this be a matter of improperly reading the tea\nleaves? If a China trade deal occurs, interest rates drop, and the American\nconsumer remains strong, we could see the storm clouds retreat and the threats\nof a recession diminish. It all comes down to whether companies can get their\ninventory controls in line. <\/p>\n\n\n\n
Reading the Tea Leaves<\/strong><\/p>\n\n\n\n In many cases we use specific words to imply meaning beyond\nthe actual statement. As an example, when transportation analysts use terms\nlike \u201cadjusting\u201d or \u201ctweaking\u201d when they set up their forecast models, you can\nassume that to mean a drop in numbers. Basically, it is an easy way to avoid\nsaying drop or raise when talking about specifics. <\/p>\n\n\n\n It is important to consider one thing, however\u2026 there is a\ndifference between \u201cbetter\u201d and \u201cless bad.\u201d Considering the fundamentals, it is\npossible that the overall business environment is not necessarily getting better\nbut is merely less bad. It implies that things are merely getting worse less\naggressively. <\/p>\n\n\n\n While carriers and shippers consistently report a better business environment, both spot and freight contracts are lower now then they were during the last quarter. Even more, fuel and other business-related costs are on the rise. From insurance to benefits packages, trucking companies are simply spending more money. As a result, profits are on the decline. <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n The recent report on second-quarter financial results for\npublicly traded trucking companies shows that many operators are doing a\ndelicate balancing act to moderate costs and prevent overheating. The greatest\ndrop in data was in OTR truckloads. With some shippers under-shipping\ncontractual freight, spot market rates are dropping. <\/p>\n\n\n\n Now the question is this: if the worst does happen and a\nrecession occurs, will your fleet be ready? There are specific measures that\ntrucking companies should take to ensure they are insulated from greater\neconomic pressures. <\/p>\n\n\n\n Are We Less Bad?<\/strong><\/p>\n\n\n\n It is the question everyone always asks. Is there a\nrecession coming? Is one already here? No one ever really knows for sure, but\nit is not difficult to read economic data and create a hypothesis. Have there\nbeen ominous signs that a recession is looming? Whether it be trade wars,\ntariffs, or a crisis in the Middle East, there are plenty of things that could\nknock the global economy off its stride. <\/p>\n\n\n\n While it is a near-certainty that there will be some\neconomic \u201ccooling off\u201d in the economy as we move into 2020, that doesn\u2019t\nnecessarily mean there will be a full-on recession or economic downturn. It\ncould be a simple isolated correction to account for an overheated stock\nmarket. Yet, if you have ever heard of the saying, \u201cHope for the best but expect\nthe worst,\u201d you know it never hurts to be prepared. <\/p>\n\n\n\n If you are a decent fleet manager or motor carrier\nexecutive, you likely already know what parts of your business are vulnerable\nto a potential recession. Perhaps you have been meaning to address some of your\ncore deficiencies but merely have not gotten around to it. Just ask any\ndisaster management specialist and they will tell you that when a catastrophe\noccurs, there is no one single incident that causes everything to collapse.<\/p>\n\n\n\n Instead, it is usually a chain reaction that leads to a\nflood of problems. Yet, when broken down and taken individually, these events\ncan be better managed. In fact, if you don\u2019t address issues when they can be\naddressed individually, things can deteriorate rather quickly. So, what is an\nenterprising fleet manager to do to ensure their business stays insulated\nduring a recession? Let\u2019s look at each factor individually.<\/p>\n\n\n\n Top Tips to Remain Recession Proof<\/strong><\/p>\n\n\n\n First up is fuel. Consider what is happening in the middle\neast right now. With the crisis brewing between Saudi Arabia and Iran, fuel\nprices could spike in the coming year. Another fuel factor is the fact that\nlarge ocean-going vessels will be switching to low sulfur diesel fuel in 2020.\nEffective fleet managers should lock in prices now with fuel vendors before\nprices at the pump rice precipitously. <\/p>\n\n\n\n Also look at overall business spending. When there is a lot\nof money coming in, businesses tend to raise spending, but when finances drop\nor dry up, it can be hard for businesses to dial back on that spending. It is\nnatural to indulge here and there, but it is critical that your business\nreduces spending and overall costs before a recession arrives. <\/p>\n\n\n\n Is your business suffering from old equipment? If you are\nrunning older, less reliant and fuel-efficient trucks, it may be time to invest\nin better equipment while the economy is still doing well. You may also want to\nconsider selling old equipment while other operators have the capital to\npurchase it. There is no better time to put something up for sale then now. <\/p>\n\n\n\n You also want to consider ensuring your outstanding payments\nare paid. Collecting outstanding payments is always such a hassle, but there\nare reliable ways to get your money. Whether you need to invest in a freight\nfactoring<\/a> partner or simply dial up the dialog with partners who have not\npaid, it is better to try and get your money now than when the economy is in\nworse shape. <\/p>\n\n\n\n Finally, you want to make sure you are always talking to your people. If the threat of recession gets bigger, you want to bring your people together and talk to them about the potential threat. It will be important that you adjust operational issues and address inefficiencies in your business mode. It will be far more difficult to make broad structural changes if the economy is going through a retraction. <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n Fortunately, in a best-case scenario, there will not be a\nrecession, war, or other calamity any time soon. Hopefully, the gathering\neconomic storm clouds will pass, but in case they don\u2019t you have nothing to\nlose by fine-tuning and tightening up your operation. Even if there is no\neconomic trouble, making these changes will help you create a more streamlined operation.\n<\/p>\n","protected":false},"excerpt":{"rendered":"