The trucking industry began experiencing an increasing number of difficulties in 2019. High costs, including rising insurance rates and tariffs made it increasingly difficult for companies to turn a profit. The rise in costs paired with high market saturation and falling shipping rates, led many companies to become unprofitable and they were forced to close.
Changes in supply and demand also posed a threat to the industry. In the first half of 2019, truckload volume dropped by over 50%, causing 640 trucking companies to close and by the end of the year, more than 800 companies had shuttered. By comparison, only 310 trucking companies closed in all of 2018.
COVID-19 has also heavily impacted the industry with stay at home orders forcing shutdowns of manufacturing facilities. There has also been a significant decrease in demand from consumers for anything other than essential goods, leaving a lot less product to be shipped. It’s expected that there will be sharp fluctuations in supply and demand moving forward – with the first swing in favor of shippers, as lower rates are expected in the near future. As the turmoil in the trucking industry shakes out this year, there will be fewer companies competing for shippers in 2021. This will in turn allow the remaining transportation companies to raise rates.
Amazon has also become major player in the trucking and shipping industries. Over the last few years, Amazon has been steadily increasing their reach into shipping – now controlling an estimated 50% of their own shipments. In 2019, the company invested roughly $10 billion into shipping, more than three leading shipping companies combined. At this point, it’s estimated that by 2025, Amazon’s shipping services could be worth $230 billion. Local trucking companies are also reaping the consequences of Amazon’s increased interest in shipping. Amazon ended contracts in February with several last mile contractors, resulting in a loss of 1,300 workers nationwide. Shipping will now be Amazon’s fourth offered service – after ecommerce, cloud, and advertising. The number of e-commerce packages was expected to grow from 50 million to 100 million a day by 2026. However, due to the virus, this trend will accelerate as more people have become comfortable with online shopping. The biggest hurdle Amazon faces now is the need for more warehouses and storage space. The high levels of uncertainty facing the trucking industry coupled with the growth and improvements in efficiency in rail traffic, have shippers turning to rail as their preferred method. The intermodal sector specifically, has been the fastest growing sector over the course of the last 30 years. However, in the last ten years there has been a shift. Domestic customers’ needs are evolving and now there is a high demand for advanced logistics and better distribution patterns. Rails now offer greater efficiency, better delivery windows, and are overall a safer and more cost-effective option compared to long-haul trucking.
How does this impact the world of commercial real estate? As companies begin relying more heavily on the rail system to meet their shipping needs, there will be an increased demand for storage warehouses and fulfillment centers near railroads. This means that finding industrial properties with access to the rail system will be critical in meeting new demand. Those companies located near rail lines will have a competitive advantage via lower shipping rates.
While proximity to rails might not be the deciding factor for some purchasers of commercial industrial properties, it certainly adds to the value of the property as it offers a feasible alternative to traditional shipping via trucking. State and local governments have realized this and are investing in infrastructure. In northwest Indiana, the city of LaPorte recently received a state grant of $1 million to add a rail spur at existing rail lines in the Kingsbury Industrial Park. Adding the rail spur would connect two of the largest rail lines in the country, Canadian National Railroad and CSX. Matt Reardon, representative of the county and a Bradley Company broker stated that, “We have unlimited potential for manufacturing and logistics once these connections to CSX and CN railroads are made.” During these changing times, it will be critical to stay ahead of the game.