By Lisa Baertlein

(Reuters] – Craig Fuller is chief executive of FreightWaves, a transportation data company. As such, he monitors many millions of transactions between U.S. trucks and truck drivers.

There has been an unexpectedly sharp downturn https://tmsnrt.rs/3vviZY0 in demand to truck everything from food to furniture since the beginning of March and rates in the overheated segment that deals in on-demand trucking jobs – known as the spot market – are skidding.

Fuller said that “it basically dropped off a rock” and is worried that the United States could be in a recession. This would affect truckers’ ability set prices, as well as cause some trucking companies to go bankrupt.

Investors and analysts are concerned about what might happen to truckers if they get worse.

The history of the United States has shown that trucking is a potential indicator for its economy. Because when consumers buy less, businesses ship less and thus business activity slows down. According to Convoy, a trucking data company that analyzes trucking data found six economic recessions in the 12 most recent trucking recessions.

GRAPHIC-U.S. trucking demand skids in 2022 – https://graphics.reuters.com/USA-SHIPPING/TRUCKING/jnpweremrpw/chart.png

Experts forecasted that trucking will soften as pandemic-weary customers shift some of their spending away from goods and services to accommodate the United States’ COVID preventive measures. However, they didn’t anticipate Russia’s invasion in Ukraine. It sent oil prices to record heights, caused volatility and forced many shoppers to pause.

The spot market, which is the most demanding sector in trucking, has entered correction territory.

Joseph Rajkovacz is director of government affairs at the Western States Trucking Association. It represents smaller trucking businesses that controlled the spot market and handled nearly 30% of all freight in the peak pandemic.

When diesel prices doubled in price, spot rate deterioration hit, and truckers like Marco Padilla, aged 63, were left with a shaky take-home income.

Padilla from California spent about 25-30c per mile for his truck to run a few years back. For every dollar paid, it was 70 cents. “Now it costs $1 per mile,” Padilla stated.

Spot rates for first quarter were $2.78 per miles in January, but dropped to $2.23 by April 14 (excluding fuel). Spot rates normally drop about 22 cents per mile during that period, said Dean Croke, freight market analyst at DAT Freight & Analytics.

Although spot rates were still 37 cents per miles higher than in April 2018, the rate fell 6 cents a year later this month, marking the first such turn of the current cycle.

“This is where fear lies. Are you ready to go? Can this continue?” Croke spoke of the demand-driven decline.

BOOM TO BUST

Spot trucking in the United States accounted for roughly 20% of all freight. This was after consumers spent more on durable goods during the pandemic. The rush to stay ahead meant that retailers and other shippers emphasized speed more than efficiency, which resulted on the use of more trucks and increased demand.

Hutto, TruckStop.com’s chief relationship officer, stated that the truckload spot marketplace was moving more than 1,000,000 loads per day at one time, as compared to its historic average of around 400,000.

However, demand plummeted in March when gasoline purchases were excluded from retail sales. The pandemic saw online sales rise, but they declined again in March.

An analyst said skyrocketing diesel prices prompted shippers to take their time filling trucks trailers rather than rush to load them.

Large trucking companies like JB Hunt Transport Services (NASDAQ:), Knight-Swift Transportation Holdings, are protected by one-year fixed-price agreements with businesses ranging from Walmart (NYSE 🙂 and others. Home Depot (NYSE:) to Procter & Gamble (NYSE:). Walmart is one of many large companies that have their own trucks, but also uses outside vendors.

Bert Subin, a Stifel Transportation Analyst stated in a research paper that soft truckloads will be in demand during the third and fourth quarters. Then there will be a rebound fueled by holiday season. Deutsche Bank (ETR) Indicators earlier in the month indicated that higher interest rates will lead to America’s next recession.

Some shippers have been asking for longer trucking agreements, Cowen Transportation analysts stated in a note.

Fraser Townley (CEO of T2M), a video game controller vendor, is one example. He celebrates the falling trucking costs as an opportunity to increase his profit margins.

They are about 1/3 down. Townley stated that there is still much to be done.