Freight’s 2020 outlook: Cloudy with a chance of lousy, analyst says

It will be a forgettable year for freight demand, though a bottoming process is likely to begin in the second half of 2020 that, if various factors break right, could presage brighter days for 2021, a transportation analyst said Monday.

Benjamin J. Hartford, analyst for investment firm Baird, said freight volumes will suffer during the year’s first half and, at best, stabilize during the second. A “less-bad” scenario may be the most realistic outlook for the July-to-December period, Hartford told the SMC3 annual winter meeting in Atlanta.

The healing process will be gradual and painful, Hartford said. U.S. industrial activity, after what may have been a head fake-like firming in December, appears to be softening again, he said. None of the usual “channel checks” — analyst lingo for discussions with supplier, shipper and carrier executives–are leading Hartford to believe an upturn is imminent, he said.

“Stabilization is the name of the game” in 2020, he said, adding that “we will test the trough in growth” over the next few weeks.

At the same time, Hartford said he expects inventory de-stocking to moderate in the first half of the year, which may put a floor under the decline and lay the groundwork for a potential upturn. U.S. businesses advanced their orders in late 2018 to get goods into the country before threatened U.S. tariffs on Chinese imported goods were to take effect on Jan. 1, 2019. Many businesses spent 2019 working off bloated inventories rather than placing new orders.

Hartford cautioned that risks accompany his projections of a second-half bottom materializing. An inverted yield curve, in which short-term interest rates are priced higher than long-term rates, may rear its head again after appearing briefly in 2019 before the Federal Reserve cut interest rates to drive down short-term yields. A yield-curve inversion indicates that bond market participants, who effectively control intermediate to long-term interest rates, sense a recession-like downturn in the offing. Hartford noted that every yield-curve inversion in the U.S. since 1960 has been followed by a recession. This year’s presidential election may inject the same type of business uncertainty as the 2016 election did.

The coronavirus, which began in Wuhan, China, but has spread to the U.S. and other countries, is another issue for economies and markets to grapple with. The massive U.S. truckload market remains well-supplied, and truckload management’s public hand-wringing over a shortage of qualified truck drivers has waned. This will dampen demand for intermodal services because railroads and intermodal marketing companies have to compete with lower over-the-road rates. Less-than-truckload (LTL) carriers, meanwhile, will see less “overflow” business from truckload because capacity won’t be tight, Hartford said.