With low fuel costs, you would think the transportation industry would be seeing big gains. But, unfortunately the opposite is true as a slowing economy and lower freight volumes lead to more trucks and railcars being available.
The trucking industry is responding by reducing workers. ABF Freight Systems recently reduced its workforce by 4% because of the slow economic environment. The predictions for 2016 were optimistically cautious a few months ago but have turned to outright caution even though trucking executives generally expect a stronger second half of the year. But, their outlook for this year is described as uncertain.
The slowdown in freight volume leads to shippers having an easier time finding trucks to hire. This puts them in the driver’s seat to negotiate for better terms. It is still unclear at this time the exact factors that are causing the drop in freight volume. Possibly reasons include excessive inventories, a manufacturing slowdown, reduced demand from the energy sector, or lagging retail sales of winter clothing and equipment due to the warmest December on record.
Workforce reduction isn’t the only belt-tightening measure for the shipping and transportation industry. In response to the lagging economy, new truck builds are being reduced. Truck users may be replacing older models with newer ones but are not buying new trucks outright. Orders are down and layoffs might be coming for OEMs.
The impact of the economy on the trucking industry doesn’t hurt us as greatly as it would other OEMs. The commercial truck components we manufacturer are just one of the many components in our portfolio. Diversification across a wide range of industries and strong capabilities enable us to maintain a solid manufacturing base in uncertain times.