The industry that moves 72% of America’s goods is suffering through a downturn so epic that some truckers are calling it a bloodbath.
There have been some signs of a turnaround, as retail sales are on the up and up and big names like UPS and JB Hunt announced better-than-expected earnings this month.
But until trucking gets back on its feet, more companies are likely to go bankrupt, according to Jason Seidl, the managing director of air and surface transportation at Cowen.
And others are just on track to not make any money. That includes the Van Buren, Arkansas-based USA Truck, which reported its earnings last week. USA Truck did not respond to a Business Insider inquiry.
USA Truck reported $2.5 million in net income in Q2 2018. In Q2 2019, it reported $1,000 in profits.
Total number of miles driven actually increased in Q2 2019 from the previous year. But revenue per load, a key measure of yield in the trucking industry, fell by 18.4% from 2018. It also sank by 8.5% from Q1 2019.
USA Truck executives emphasized in the earnings call to investors that the company simply turned any profit in the challenging time for the industry in the face of a plunge in spot rates.
Spot rates, where retailers and manufacturers find trucks on demand rather than through a prearranged contract, dipped by as much as 18% in June 2019 compared with June 2018.
Because of that, USA Truck said much of its contract business has pulled out and headed to the ultra-cheap spot market.
The company will continue to focus on cutting fixed costs by 5-10% and adding new customers to its base to improve financial performance.
Last year, trucking was incredibly profitable, with record-low bankruptcies, remarkably high rates, eight-month-long wait lists for new trucks, and huge bumps in trucker pay.
“I view it as the market correcting itself,” Seidl told Business Insider. “We basically put too much capacity out there in the marketplace and you saw that by the rates dropping very hard. The market can only take so much of that – so it corrects itself. And this is the market just correcting itself.”
‘We know who kind of took advantage of us in this market’
Trucking is highly cyclical, with huge peaks and lows that often catch trucking companies and their customers by surprise. In 2018, for instance, the ultra-high rates prompted companies like Amazon and General Mills to increase prices simply because they couldn’t otherwise pay for their goods to be moved.
Now that rates are dipping, retailers and manufacturers are able to move their goods at dirt-cheap prices, but trucking companies are getting squeezed.
“It’s a self-fulfilling cycle and we are shooting ourselves in the foot,” Ahmad El-Dardiry, chief revenue officer at Transfix, told Business Insider. “We need to figure out a way how to come together and normalize this variability that shippers are truly incentivized to make sure that carriers are around and viable in a soft market. It’s hard for me to comprehend that all these trucking companies go out of business when the market is soft.”
USA Truck CFO Jason Bates alluded to that issue in the earnings call with investors, when he candidly praised long-term customers who didn’t take advantage of them during the trucking downturn.
By not demanding super-high rates last year, USA Truck was able to still charge a reasonable amount to those customers this year.
“We had one customer last year that said, ‘We know who kind of took advantage of us in this market from their perspective and we’ll have a long memory,'” Bates said. “And they’ve been true to that. They’ve given us most of the freight that we committed to our largest customer, which you can go look at RK is disclosed in there. They have been very faithful in giving us the freight that we agreed to.”