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Tariffs and ongoing trade disputes have created a high degree of uncertainty for shippers and transportation providers. (IMC Logistics)

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Shifting U.S. trade policies, fluctuating tariffs and the resulting supply chain upheaval have created an uncertain business landscape for the North American trucking industry, in the present and down the road.

The on-again, off-again tariffs have been a roller coaster ride for motor carriers that were already operating in a low-margin, high-cost environment, leaving them unsure of what’s next.

“We aren’t doing a lot to prepare for it because we don’t know what to do to prepare,” said Ken Johnson, executive chairman at trucking and logistics provider Leonard’s Express. “As businesspeople, we can generally figure out a way to make things work, but we can’t figure out uncertainty.”

Higher taxes on imported goods can have far-reaching effects on businesses and consumers alike.

“When the cost of goods increases, demand decreases and, in turn, freight volumes decrease,” said Bob Costello, chief economist for American Trucking Associations.

Some industry analysts anticipate a broader and potentially lasting shift in freight flows as businesses consider shifting the locations of their production and distribution footprints.

“Structurally, we’re seeing certain commodities on the export market change long term. When you lose trust in a trading partner, that’s a pretty big deal,” said Dean Croke, principal analyst for DAT iQ, the freight data operation at DAT Freight & Analytics.

In addition to tariffs, shippers are bracing for potential fallout from the Office of the U.S. Trade Representative’s plan to impose new fees on Chinese ships entering U.S. ports, which could exacerbate inflation and suppress imports.

ATA’s Costello said only 7% of last year’s U.S. port calls would have fallen within the scope of the new fee structure. However, higher fees may incentivize shippers to explore alternative routes or modes of transportation, potentially impacting the volume of goods moving through specific ports. Fees also could dampen consumer demand.

“The voyage itself is going to become more expensive,” said Anne Reinke, CEO of Intermodal Association of North America. “Most companies have to pass along those costs and, ultimately, that will mean an increase in the cost to the consumer and volumes go down.”

Diversifying Supply Chains

The COVID pandemic offered a painful lesson on overreliance on single-source supply chains, prompting many shippers to look for supply chain redundancy. Since tariffs also alter the cost advantages of various global sourcing regions, certain countries are becoming more cost-effective than others due to evolving tariff structures.

“Over the long term, depending on the ultimate shape of the tariff environment, production locations could shift countries,” said Dilip Bhattacharjee, a partner at consulting firm McKinsey & Co. “Under those circumstances, there is a possibility for trade diversions to take place, which, in turn, affect the ports of entry for U.S.-bound goods.”

In particular, companies are facing pressure to move production out of China.

While some manufacturers may consider alternate sourcing locations, such as India or Taiwan, the transition can be complex, said Joel Henry, CEO of marine drayage and intermodal logistics provider IMC Cos.

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A cargo ship at the Yangshan Deepwater Port in Shanghai. (Qilai Shen/Bloomberg News)

“It takes more than a month, 90 days or even 12 months to completely change the infrastructure,” Henry said. “In the short term, it is very hard for our customers.”

Many intermodal players have built their infrastructure around imports from China for a reason.

“One of the things that makes this all so challenging is that China has a highly trained workforce. Not every country that isn’t China in the Far East has that highly trained workforce,” IANA’s Reinke explained.

The more immediate impact has been erratic freight demand as shippers rushed to import goods ahead of tariffs, then hit pause once they took effect. A 90-day tariff pause between the U.S. and China, scheduled to last through mid-August, is expected to generate a surge in imports throughout the summer.

DAT’s Croke said shippers are “frantically” booking capacity.

“I think we’re going to see a tsunami of imports heading toward us,” he said. “In the immediate term, we’re going to see a lot of volatility.”

Surges in freight demand can strain infrastructure, drive spot market rates higher and alter established lanes.

“We’ll see different lanes pop up,” Croke said, explaining that shippers will seek out warehouse space wherever they can.

In port cities, IMC has fielded calls from shippers asking for bonded or foreign-trade-zone space, but Henry said most of those locations are fairly full at this point.

IMC Logistics, based in Collierville, Tenn., ranks No. 53��on the Transport Topics Top 100 list of the largest for-hire carriers in North America.

Watching Border Crossings

Truck crossings across the United States’ northern and southern borders also may shift due to tariffs.

“We’re seeing an observable shift in volumes from Canada to the U.S.,” DAT’s Croke said. “I think those volumes will be substantially reduced over time.”

Some Leonard’s Express customers have seen a slowing of demand from within Canada.

“It is the uncertainty more so than the tariff itself,” Johnson said. “I suspect that as the tariffs are either fixed, changed or accepted, it is going to change.”

Leonard’s Express, a refrigerated and dry van truckload carrier and intermodal service provider based in Farmington, N.Y., ranks No. 86 on the for-hire TT100.

In recent years, Mexico has become an attractive destination for companies to nearshore manufacturing as a way to reduce supply chain risks and costs.

“While tariffs and trade negotiations could influence this trend, the overall benefits of nearshoring, such as proximity and reduced lead times, may continue to support its growth,” McKinsey’s Bhattacharjee said.

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Commercial trucks cross from El Paso, Texas, to Juárez, Mexico. (Mesilla Valley Transportation)

The future of nearshoring hinges on the outcome of the upcoming review of the United States-Mexico-Canada Agreement, the North American trade agreement that replaced NAFTA in 2020.

“If progress is made and things don’t change much, I think we will be fine with Mexico and continued reshoring,” ATA’s Costello said.

Royal Jones, CEO and founder of Mesilla Valley Transportation, said he is optimistic that cross-border freight will remain strong. About 40% of the company’s business comes from Mexico, he said.

Mesilla Valley Transportation, based in Las Cruces, N.M., ranks No. 65 on the for-hire TT100.

Reacting to Shifting Demand

To remain agile, carriers are diversifying their networks, investing in visibility tools and building more fluid interchange models, including drop-and-hook and relay.

“Some are co-locating near new cross-border or inland hubs, while others are expanding brokerage or intermodal offerings to flex capacity more easily,” Bhattacharjee said.

MVT’s Jones said shippers are looking for flexible, end-to-end solutions. He recently combined the J.H. Rose Logistics and Stagecoach Cartage and Distribution brands that operate within the MVT family of companies into a single MVT Logistics brand.

“It lets my sales team do more under one name. They can say, ‘I can broker your freight, or I can do cross-border and warehousing,’” he said.

Jones also noted growing demand for asset-based carriers and said shippers are checking to ensure carriers are financially secure.

“Nobody wants to use a carrier that isn’t making money,” he said.

IMC is focusing on remaining flexible while controlling costs.

“We have to be smarter to make sure we’re not creating multiple touches to get to one box,” Henry said. “We want to make sure that we have enough drivers, chassis and storage facilities when there is a surge.”

At the same time, when volumes dip, it is a “juggling act” for carriers.

“Drivers depend on steady cargo to have a steady check,” Henry said. “We’ve been trying to ensure that we balance the cargo out as much as possible with our drivers to keep them busy or busy enough to survive.”

Shifts in freight patterns also affect the availability of equipment, especially intermodal containers. Henry said IMC has seen demand increase for depot storage of empty containers.

“If the empty containers start piling up and if they are still on top of the chassis, then you start having issues with having enough chassis to pull the loads out,” Henry said.

Reinke of IANA added that a surge in incoming containers can lead to congestion at the ports, which happened during the pandemic.

“Ports aren’t warehouses,” Reinke said, noting that rail and trucking capacity are currently available so cargo is moving.

Ocean carriers have encouraged transloading, moving cargo into trailers rather than containers for inland transport.

“What you’ll see is there will be a disruption on exporters that depend on those containers going inland,” DAT’s Croke said. “It won’t be near the level during the pandemic, but we will see it.”

ATA’s Costello said trucking supply chains are diverse and adaptable.

“However, while motor carriers typically have the ability to react to market fluctuations, current uncertainty is preventing capital investment in equipment, employment, etc., which will hamper their ability to respond quickly to supply chain disruptions,” he said.

Operating in Uncertain Times

Fleet operators are also consumers. Tariffs on steel, aluminum and components are increasing costs for manufacturers of trucking equipment. Tariffs also have been applied to cranes and shipping containers.

“There are no domestic intermodal containers made in the United States,” IANA’s Reinke said.

These higher costs are a challenge for motor carriers, which are already under pressure in a weak freight market.

“In our industry in general, we can’t afford an increase in anything, and I suspect we’re going to see some increases,” said Johnson of Leonard’s Express.

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Motor carriers are struggling to plan for the future in an uncertain business climate. (Leonard's Express via Facebook)

Even before the tariffs, Leonard’s Express decided to slow down its trade cycles as the cost of new trucks has continued to increase.

“We will still make sure our fleet is modern and cost-effective, but we’re going to wait to see what the economy is doing before returning to our shorter trade cycle,” Johnson said.

Mesilla Valley Transportation, meanwhile, has focused on controlling costs, working closely with customers and adding services, including more dedicated contract work.

“We are staying focused on the relationships,” Jones said.

Technology, including automation and artificial intelligence, is becoming more important for carriers and shippers as they navigate uncertainty.

“Everyone is looking to improve, particularly if they have a labor force that they don’t know is sustainable,” IANA’s Reinke said.

Leonard’s Express is leaning into technology, including the AI-based tools it has in place, to help increase efficiency and improve decision making.

“We use a couple of tools, and we’re happy with the progression we’re making,” Johnson said.

IMC has invested in technology to improve efficiency, maximize utilization, increase transparency and give customers greater visibility.

“There could be a container with certain SKUs [stock-keeping units] that is more important than others. The transparency allows us to get the cargo to the customers that they actually need,” Henry said.

IMC developed its technology-enabled SmartStacks drayage process during the pandemic. With SmartStacks, drivers can use IMC’s proprietary app to self-assign the most available load at the port instead of waiting for a specific one, which Henry said has more than doubled productivity.

“That is very helpful for the [beneficial cargo owner] but also makes our drivers and our trucks more productive,” he said.

Shippers also have turned to technology, which DAT’s Croke said is leveling the playing field.

“On the shipper side, they have as much data as the broker has into price transparency,” he said. “Pre-pandemic, that wasn’t the case.”

More advanced technology is becoming essential as shippers look at the different scenarios and determine which levers they need to pull to manage costs, said John Lash, group vice president of product strategy at e2open, a supply chain software provider.

For many companies, adjusting transportation patterns and modes is easier than building a new factory, he said.

While intermodal and cross-border traffic may see the biggest shifts, changes in freight patterns ultimately could affect all carriers.

“My concern is not only what inflation does to demand, but also, if imports and exports slow down, and you own a truck, you’re going to find something else to haul,” said Johnson of Leonard’s Express. “Other carriers could come into our market.”