The trucking industry is in dire need of an interest rate cut, a subject frequently discussed on the show floor at the National Equipment Finance Association’s second annual spring conference last week.
Kit West, business development director at Wyoming-based lender C.H. Brown, said it’s uncertain whether the country will see up to three rate cuts this year — as some local branches of the Federal Reserve have signaled — or none.
“Right now, the economy is doing too well to warrant interest rate cuts,” West told Equipment Finance News. “If businesses are growing and hiring with 8.5% prime, why should we cut rates?”
He agreed that the industry could benefit from a rate cut but stressed that it should be “balanced.”
“Zero percent rates are not balanced,” West said. “From my 50-plus years of existence, we have always had some sort of rate [between] 7% and 21%.”
Confidence in trucking industry declines alongside freight rates
The trucking industry segment recorded the largest drop in confidence in the Equipment Leasing and Finance Association’s annual Equipment Market Forecast report’s 34-year history, according to a the report, published last month that ranks lender confidence in industry segments. Trucking ranked 12th among industry segments, down from third place the year prior.
Meanwhile, recent data from analyst firm Sandhillls Global found that inventory levels for medium-duty, heavy-duty and semitrailers were all up year over year. In 2023, tonnage shipped fell by 1.7% YoY, analyst Carl Chrappa, senior managing director of equipment advisory firm Alta Group’s asset management practice, said at the time.
Heavy-duty trucks saw the smallest inventory increase YoY in March, according to ELFA, up 12.18%.
West said he could see over-the-road trucks weathering the financial downturn but there must be an industry-wide shift in shipping, “otherwise it is going to follow a trend where there gets to be more loads than trucks, and only then will rates go up.”
“There needs to be a reduction in the number of trucks available to haul for rates to go up,” West said. “That is not going to happen unless there is a sudden change that creates more demand for goods to be shipped.”
West added, “we’re not seeing freight rates come up anymore.”
A “volatile” market
“After the pandemic, there was a huge bounce in trucking; truckers could basically name their price,” said Austin Ward, business development executive at Texas-based lender Gulf Coast Business Credit. “That has changed, and we’ve seen some slowdown there… But overall, the economy has been way more resilient than most people anticipated.”
Adam Ruchim, managing director of Chicago-based lender CIBC U.S., said at the noted banks’ reactions to interest rate changes are often “cyclical,” but that higher interest rate environments can mean “the best risk-reward propositions present themselves” for lenders.
“Where you run into issues is with trucking, when it is so volatile and so fast,” Ruchim said. “We saw prices double in one year and then halve, and that’s where people become upside-down in their payments, where they owe more than what the equipment’s worth, and so regardless of what their down payment was, they’ll walk away from it.”
Registration is now available for Equipment Finance Connect. The dealer-centric equipment lending and leasing event of the year offers opportunities for dealers to learn new strategies, foster valuable partnerships and emerge with ideas to immediately apply to their businesses. Learn about Free Dealer Registration at EquipmentFinanceConnect.com.
