Butch Rice doesn’t believe the doom and gloom bandied about in some quarters about the trucking industry.
After a robust 2018 in trucking, things have retracted in 2019. Business Insider reported that 12 trucking companies have closed up shop and 3,000 drivers lost their jobs, although with the current driver shortage it is hard to imagine they didn’t soon find suitors on their doorsteps.
Rice said the retraction is just a regular market correction after the heights of 2018. Some say the trucking slowdown is a harbinger of a recession, but not Rice.
“I feel the economy is OK,” said Rice, the president and CEO of Stallion Transportation in Beebe. “Right now the market is back to normal. We’re back to doing the daily grind.”
At a recent conference in Bentonville, executives with Transplace of Frisco, Texas, a national logistics company with an office in Lowell, said 2019 looks like a bad year only when compared with 2018.
Stallion has about 80 trucks and $40 million in annual revenue, and Rice said the company is doing well. Other public transportation companies in Arkansas have reported declines in revenue or income in 2019 — USA Truck Inc. of Van Buren gained some national attention for reporting $1,000 in second-quarter income a couple of months ago.
Rice said one of the reasons for the drawback in 2019 — other than being a normal part of a really cyclical industry — is the spot market.
The spot market is like the freelance desk of the trucking world, where shippers and carriers make short-term deals on deliveries.
“If you live off the spot market rates, you’re playing Russian roulette,” said Rice, past chairman of the Arkansas Trucking Association.
Increased freight in recent years drove up rates and the spot market benefited. Rice said 90% of his business is contract work, but it was tempting to jump into the spot market because rates were so good for carriers.
“We don’t live and die by it, but the last two years that spot market would make you want to go out and buy trucks,” Rice said. “You have to be disciplined and know that it is the short term.”
Well, the supply of freight pulled back and the good times are coming to an end. Spot rates have dropped significantly over the past year — the trucking database DAT lists rate decreases of more than 10% in each of the major segments: dry van, flatbed and reefer. (Reefer is industry shorthand for refrigerated trucking. I’m sure that is what all of y’all were thinking.)
“The spot market rates aren’t there like they were the last couple of years. It has gotten a little softer, but the last two or three years were record years,” Rice said. “It is back down to normal. People who planned for that are the ones who prosper. The ones who didn’t plan are the ones who are in trouble.”
Dipping into the spot market isn’t business malfeasance. Rice said Stallion uses it when there are, for example, one-way contract shipments; a driver can pick up a load on a return trip to avoid empty miles.
USA Truck relied on the spot market more than usual in its $1,000 second quarter because it didn’t receive the contract freight it expected. As spot rates fell, it would stand to reason that some shippers would move contract freight to a cheaper alternative; rather than agree to below-market contracts, USA Truck used the spot market.
“The spot market is where carriers don’t have any [long-term] relationship with their customers — they go where the market is hot and this year those carriers are hung out,” Rice said. “There happens to be just enough freight for the carriers to have the business they need but not too much freight, which drives the rates up. A lot of these carriers that rely on these spot rates, they’re suffering.”