Go Truck Yourself!!

Trucks. If you live anywhere on the 401 corridor in Ontario, then you are well aware of trucks. They go by names like big rigs, 18 wheelers, and transports, but they are all the same. Their purpose is quite simple : move a commodity from one place to another.

The 401 corridor is one of the busiest trucking areas in North America. More trucks traverse the 401 between the 403 and 402 than any other area on the continent. They move our cars, our lumber, our groceries, our fuel, and everything in between. On top of being a large driving force – no pun intended in our daily lives, the trucking industry also plays a role in financial markets. Trucking – and everything associated with it is a great bellweather to measure the strength, or lack thereof of our economy. Since everything we need comes by truck, the industry is a fantastic way to channel check.

Warren Buffett used to perform ‘ channel checks ‘ back in the day in Omaha, Nebraska. A channel check is a very simple rudimentary process of getting data. In Warren’s case he would simply count the number of train cars that passed through. More cars on the trains equaled more goods being moved which equaled expanding or growing demand for goods. Less cars meant the exact opposite. He could literally tell the health of the economy by counting train cars. Ironically enough, Mr. Buffett bought out the railway Burlington Northern Santa Fe years later ( BNSF ) and took it private. He no longer has to count cars, he can simply look at the railroad he now owns to perform channel checks much easier.

In today’s day and age so much freight moves via transports that the trucking industry can give us some very big insights in economics. Well, I am here to tell you – the results are not looking pretty. 2023 has witnessed more trucking company failures than any year, and includes some big name like Yellow Transport. Yellow was a 100+ year old truck company that survived the 1929 depression, the high inflation of the 80’s, the tech wreck in 2001, the great financial crisis and the COVID economy, but couldn’t make it through 2023. We are now eclipsing 200 thousand job losses in the trucking industry ( and spin off jobs ) YTD in 2023. Not a small number.

So, maybe the freight is going by other means? Maybe container ships across the ocean are a better indicator? Well, shipping giant MAERSK announced last week that they will be laying of 10,000 employees, cancelling new ships,and they have witnessed a very sharp downturn in volumes.

Okay, so maybe the freight is going by rail? Well, if we take a quick glance at all the rail lines like CP, and CN it would tell you that the freight isn’t being sent by rail. CN announced that revenue is down 11.66% YOY, net income is down 23.85% YOY, and noted ” weak consumer demand” in their latest earnings call. BNSF referenced above also noted a marked slowdown in revenue and profit, helping to lower Berkshire Hathaway’s quarterly operating profit. Don’t feel bad for Mr. Buffett though, as his company did well on the whole seeing profits jump almost 40% over 2022 – even with a slowdown at the railroad.

Okay, okay, so if the trucking industry is slow, and the ship lines are slow, and the railroads are slow, then the freight must be moved by air, right? Well, no, not exactly. While in the past I have highlighted UPS, I am gonna pick on Fedex for a moment. Fedex last week announced that even though there is an international pilot shortage, they are telling their pilots to go and work for American Airlines. Yep, even though you can’t hire a pilot right now, Fedex is letting pilots go. The reason? Slowing volumes, and weak consumer and business demand for shipments.

So, I think we may just have to come to the conclusion that perhaps things are looking like shit going forward – at least for the next couple of quarters. So, if you have made it this far, you may be asking yourself ” Why the hell do I care”.

The neat and cool thing about things like trucks, boats, planes and trains is that they are extremely integrated into our society. Every day you see them. Every day you probably hear them. But the big reason you should care is that something that integrated into society is usually levered up. Ships, planes, trains and trucks usually carry loans against them – and big ones.

On Friday night, The Federal Deposit Insurance Corporation ( FDIC ) seized a bank out in Iowa. This marks the 5th bank to collapse in 2023 that has been taken over by regulators. In the press release it was detailed how basically a loan to a commercial trucking company brought down an entire bank. The trucking company went bust, and due to it being a large percentage of the loan book at Citizens Bank – they went under. Of course the regulators stepped in, ensured the depositors were made whole, and sold off the pieces to another bank. So no harm, no foul, right?

No. Failing banks are always bad for market confidence. We witnessed in March of 2023 what happens when people start to lose the faith in financial institutions. Is Citizens Bank of Iowa a one off? Is this the first in a series of dominoes to fall? How many other trucking / transportation companies are on the brink that could bring down another institution or two?

Now, I get it. Many people really don’t think that some small regional bank in a far off place like Iowa has anything to do with them. Any to some extent they may be right. However, it plays a much larger role than you may think.

Imagine you are the Chief Risk Officer for a big 5 bank in Canada. You of course are well aware that Citizens Bank has failed, and been bailed out. The first thing you do is check to see if A ) you have any mutual clients, and B ) if you had any debts, loans, co signatory items with the failed bank. While it may seem odd, Canadian banks have a very large reach in the US ,and have a lot of business dealings. So, assuming you had nothing on the books with that bank, you start to re assess the risk of your trucking clients. You stop loaning money to your trucking clients so your bank isn’t next in line. You also wonder if it isn’t just trucking, and maybe anything tied to consumer spending is suffering? You start to sharpen the pencil, tighten the purse strings, and become extremely careful who you lend money to. This leads to a credit contraction. If money cannot flow, and loans are not made, we experience a very poor economy.

So, while you may think that some little bank in Iowa is a world away, it may be closer than you think, and have more of an impact than you may know. A butterfly flapping its wings in Africa can lead to a hurricane under the right conditions – or so says the chaos theory. If that is possible, then a small little bank failure could certainly cause banks to slow lending. In other words, borrowers – whether they be personal, business, or institutional might be simply told to ‘ truck off’ .