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January 6 2020

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84 The Journal of Commerce | Januar y 6 2020 Surface Transportation 2020 ANNUAL REVIEW & OUTLOOK TRUCKLOAD CARRIERS WILL look for some healing in 2020 after a bruising 2019, and they may get it by the mid- dle of the year. There were indicators in the fourth quarter that truck pric- ing is poised to turn up again. US shippers should keep that possibility in mind as they plan annual trucking contract talks, most of which take place in the first quarter. Coyote Logistics believes the turning point is already here. "After six consecutive quarters of deflation, the market is rebounding, heading back towards an inflationary envi- ronment," the Chicago-based third- party logistics provider said in its fourth-quarter Coyote Curve fore- cast. "The spot market will reach an inflationary environment by Q1 2020." Contract rates, however, proba- bly will remain negative year-over- year through bid season and the first quarter, Coyote said, and will only rise gradually as spot rates climb. "Shippers can anticipate primary tender acceptance erosion by Q2 2020, which would mean more unplanned exposure to the spot market," the 3PL warned. If that's the case, 2020 may end up feeling a lot like 2017. How big a price swing in truck- ers' direction shippers ultimately experience will depend on supply (of trucks and drivers) and demand (for freight). But with economists predicting another year of below- trend growth, it's unclear where the economic stimulus that would gen- erate higher freight demand might come from. IHS Markit, parent company of The Journal of Com- merce, forecasts a 2.1 percent annual expansion rate for the US economy in 2020. Even so, spot market load-board operator DAT Solutions predicts a 5 percent increase in spot truckload rates and a 2 percent increase in contract rates in 2020. "Truckload shipments will cost more," DAT said in its 2020 forecast, released in late November. In 2019, "contract rates lost 2 percent from huge gains in 2018. Those prices should climb again in 2020." Capacity 'catalyst' Rate hikes, DAT believes, will be spurred by tighter capacity. "Capacity has been exiting the marketplace," the company said. "More motor carriers closed their doors in the first half of 2019 than in all of 2018, according to the US Bank Freight Payment Index." Expanded use of electronic logging devices (ELDs) also will constrain capacity, DAT suggested. DAT noted that freight demand, in terms of total spot and contract volumes, has been increasing, with spot volumes rising 7 percent in 2019 year over year and contract volumes 4 percent. The American Trucking Associations predicts a 1 percent increase in contract truck- load volumes for 2019, down from annualized growth of 3.2 percent in 2018 and 3 percent in 2017. How much capacity must exit the market before supply and demand move back to a closer alignment? Some experts believe truckload capa- city and freight demand already are closer to an equilibrium than they've been since 2017 and that a surge in demand could tip the balance. Others think trucking's supply-demand gap will take more time to close. "Incremental capacity brought into the market during the 2017 and 2018 investment binge is going underutilized, especially across the secondary truck market," Chris Pickett, chief strategy officer Coyote Logistics, told The Journal of Com- merce. "Cost pressures are forcing trucking companies, especially small carriers, to either exit the market or merge." There's no doubt that truckload capacity has been exiting the mar- ket, but capacity also has been enter- ing the market. More than 21,000 new motor carriers registered with the US Department of Transporta- tion as for-hire, active carriers from June 2018 through June 2019. More than 16,500 of them were one- to -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4* 2020 Q1* 2020 Q2* US truckload rates expected to rebound in 2020 Source: IHS Markit © 2019 IHS Markit Year-over-year change in IHS Markit US truckload producer price index Notes: *IHS Markit predictions Rebound effect Truckload carriers search for a turning point By William B. Cassidy "Aer six consecutive quarters of deflation, the market is rebounding."

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