REPORT: “Capacity Rebalancing” Coming in 2020

Columbus, IN – After a year that saw capacity exceed demand for many U.S. trucking companies, optimism now seems to be growing that things could rebalance in 2020.

Two new reports by ACT Research support this outlook, according to Tim Denoyer, ACT’s Vice President and Senior Analyst.

The latest release of ACT’s For-Hire Trucking Index, with November data, showed relatively neutral readings on for-hire freight volumes and rates, with 51.5 and 50.9 respective diffusion index readings.

With a slight contraction in for-hire capacity, the supply-demand balance remained in modestly positive territory for a fifth straight month.

 

However, the Productivity Index fell to 48.4 in November, from 53.9 in October.

“With some key caveats, we think the string of positive supply-demand results is a positive leading indicator for a capacity rebalancing in 2020,” Denoyer projects.

Denoyer also provided more details as to what those “caveats” entail.

“The first caveat is that private fleets, the other half of the industry, are not showing the same capacity discipline as the for-hire fleets. The second is that the freight volume outlook remains muted, with a soft manufacturing sector and trade-related inventory overhang likely outweighing relief from the China phase-one deal, which is yet to be signed.”

“Oversupply Problem” to Ease by Q2 2020?

In November, David Jackson, C.E.O of mega carrier Knight-Swift, told CNBC the trucking industry is currently experiencing an “oversupply problem” that is going to continue to bring “near term pressure on freight rates.”

However, Jackson indicated recent employment reductions within the driver pool could soon help improve the operating environment for carriers.

 

He said that since “capacity is leaving the space,” he expected freight rates to begin improving by the time the second quarter of 2020 rolls around.

“People in the industry and investors are looking for when that inflection point will come. General consensus is, that is happening the second quarter of next year,” Jackson predicted.


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Knight-Swift also recently lowered earnings projections for the remainder of 2020.

“The industry continues to be oversupplied with truckload capacity, which led to more muted seasonal improvement in the freight market from third to fourth quarter” leading to “fewer than expected seasonal high-yield freight opportunities.”

As a result, Knight-Swift was unable to increase freight rates as much as it expected, “leading to reduced revenues and lower-than-expected operating income,” the company said.

U.S. Xpress C.E.O. Eric Fuller also recently blamed his company’s disappointing Q3 2019 financial results, in part, on continued overcapacity.

“The third quarter was marked by continued industrywide overcapacity of tractors in relation to freight demand,” Fuller explained.

USX posted a net income loss of $1.4 million (-$0.03 per share) in the third quarter.

Despite some warnings from investors, Fuller continues betting that supply will soon balance with demand, along with an improved rate environment.

 

This is evidenced by the fact USX continues to add, not reduce, capacity.

USX grew its tractor count by more than 5% in the third quarter to 6,533 units.

However, though some analysts are expressing optimism about what 2020 will bring, it should be noted that it is a dreaded election year when all bets are off.

 


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