Too Light of a Load?

Last year was such a profitable year for the trucking industry that companies went on a buying and hiring spree, ordering loads of new trucks and bringing on scores of new drivers. But all of that may soon come to a screeching halt as freight activity continues to shrink, foreshadowing potential trouble for the economy.

Freight rates have dropped year-over-year for six months straight, with loads on the spot market decreasing by more than 50% in June from the previous year, according to the results of a new Morgan Stanley freight survey. At the same, capacity has shot up nearly 30% in June year-over-year. This means less cargo is being moved and more trucks are sitting empty in lots. None of this bodes well for the economy, says Dustin Ogden, a Korn Ferry senior client partner and a member of the firm’s Global Logistics and Transportation Services Sector. “For a very long time, the trucking industry has been a warning signal about the economy,” says Ogden. “So this would indicate a potential recession.”

The trucking industry’s down cycle could be caused by a number of factors, experts say. Companies may be housing less inventory in general or holding product elsewhere, like China, because of uncertainty over tariffs. It could have also been sparked by downturns in other industries that feed into trucking, like manufacturing and construction. Last month, manufacturing growth hit its lowest level in three years and construction spending was flat, which means a dampened need to move related freight.

But it’s not all bad news for the trucking industry. The latest figures from the US Department of Labor show trucking employment in an upturn, with the for-hire industry gaining 36,800 jobs between June 2018 and June 2019. Nearly 12,000 of those jobs were added since the beginning of this year.

Still, trucking is a sector notorious for mass hiring and mass layoffs, says Melissa Swift, leader of Korn Ferry’s Digital Advisory practice for North America. Although the Department of Labor numbers suggest healthy employment growth, overcapacity could mean that many of those jobs may soon go away as trucking companies begin to scale back business or shutter completely (a handful of businesses have already declared bankruptcy this year). After all, pay expectations among trucking companies have sunk to 2016 levels, according to the Morgan Stanley report. That was the year the trucking industry last hit a big slowdown.

This could leave organizations facing a conundrum when the industry experiences its next upswing, as “trucking is one of the toughest jobs to hire for,” says Swift. Not only are there strict requirements to becoming a truck driver (think clean drug tests and driving records), but the role itself is becoming more and more complex thanks to higher levels of digitization and automation in the industry. People, though, aren’t being trained for these new responsibilities and complexities. “Recession or no recession, this talent pool is still in short supply,” Swift says.

Trucking companies, then, will need to start planning for the long term if they want to avoid the job pitfalls of a cyclical industry, experts say. Overstaffing and talent shortages happen when organizations overreact to the economic cycles: hire a bunch of drivers when the getting is good, and make cuts when the going gets tough. But successful leaders understand the value of a stable trucking workforce, and will find ways to retain employees even during times of large downturns, says Ogden. “Good companies will think about what’s on the other side,” he says.

As for attracting workers, Swift says that instead of following the mass-hiring standard, trucking companies need to start developing a continuous pipeline of talent, one that can be fed by trade-school partnerships or local community initiatives. This way, companies can prepare for—and get ahead of—economic and tech changes that are bound to happen in the industry. “You have a job that’s in transition right now,” she says. “You need to have a long-haul view of this.”