What lenders need to know about credit risk in the $1 trillion trucking industry

The trucking industry, a backbone of the American economy, is at a crossroads. Despite moving 11.2 billion tons of freight in 2023 and generating nearly $1 trillion in gross freight revenue, the industry operates on razor-thin margins. With more than 3.5 million truck drivers and 577,000 carriers on the road—95.5% of which operate 10 or fewer trucks—this fragmented and complex sector is both a credit risk and opportunity for financial institutions.

Trucking is everywhere. From the produce aisle to your doorstep, nearly every product touches a truck at some point. Yet, the financial sector often underestimates its impact. Long-haul freight makes up about one-third of overall freight and includes giant J.B. Hunt, which controls just 5% of the market. Most carriers are small, local businesses walking into your bank every day, and many financial institutions aren’t equipped to assess their unique risk profiles.

The Economic Whiplash of Freight Cycles

After an unprecedented demand spike during the COVID-19 pandemic, followed by rapid investment and overcapacity in 2022, the trucking sector hit a wall. Demand plummeted in late 2022, sending spot rates and revenue into a nosedive. This "Great Freight Recession" exposed just how volatile the industry is. Freight rates dropped by as much as 50%, and the once-thriving market was suddenly awash with underutilized trucks and rising costs.

Understanding the relationship between fleet capacity (supply) and freight volume (demand) is key. Unlike demand, supply is sticky—requiring long-term investments in trucks, warehouses, and labor. The mismatch can wreak havoc on profit margins, especially when paired with rising fuel, insurance, and labor costs.

Understanding Risk Profiles Across Local and Long-Haul Freight

The U.S. trucking industry is not a single, uniform entity. Instead, it’s diverse and made up of many different kinds of businesses, from small local carriers to large national fleets, each with its own operational model, risk profile, and financial structure.

Long-haul freight moves goods across state lines, often covering thousands of miles, and typically operates on a 4.4% profit margin. This segment is especially vulnerable to macroeconomic forces such as global trade policies, fuel price volatility, and supply chain disruptions. Companies often experience high operating costs due to equipment investments, driver compensation and benefits, and regulatory compliance.

In contrast, local freight carriers, which generally operate within a 100-mile radius, tend to enjoy greater stability, with a 6.2% profit margin. These carriers serve warehouses, regional distribution hubs, and final-mile deliveries. Their operations allow for more predictable route planning, maintenance scheduling, and fuel usage. Still, local carriers are not immune to risk. While they are less sensitive to tariffs and fuel fluctuations, they face intense competition, rising labor costs, and regulatory hurdles.

Why One-Size-Fits-All Lending Doesn’t Work in Trucking

To accurately assess credit risk, lenders must familiarize themselves with the nuance of the industry segments. For example, small local operators may lack sophisticated financial management systems or struggle with cash flow due to delayed receivables, even if their books appear profitable. Long-haul firms, on the other hand, may show strong revenue numbers but could be over-leveraged due to fleet expansion during peak demand periods, exposing them to major losses when rates drop.

Both segments face industry-wide concerns like driver shortages, aging infrastructure, and environmental mandates that drive up costs. Without the benefit of fuel contracts or hedging tools, smaller carriers are especially exposed to diesel price fluctuations. This asymmetry makes detailed financial due diligence and industry-specific knowledge vital for sound loan structuring and risk mitigation.

Ultimately, lenders should avoid treating all trucking businesses the same. Instead, they should adopt tailored credit evaluation frameworks that distinguish between local and long-haul freight models, assess operational efficiencies, and incorporate emerging risks such as autonomous trucking tightening regulations. Doing so enables stronger underwriting decisions, better portfolio performance, and long-term client viability.

Regulatory and Trade Pressures

The Environmental Protection Agency’s (EPA’s) greenhouse gas emissions mandates for heavy-duty vehicles, along with the Federal Motor Carrier Safety Administration’s (FMCSA’s) hours of service rules and potential speed limiters (electronic control units installed in trucks to cap their maximum speed) all squeeze operational capacity.

Meanwhile, infrastructure challenges and geopolitical tensions add further uncertainty. Tariffs and trade risks have long-term implications, particularly for an industry whose distribution networks have taken decades to build. The legal infrastructure for innovations like autonomous trucks remains incomplete, making widespread adoption unlikely in the near term.

Mitigation Strategies for Financial Institutions

1. Segment Your Risk: Local and long-haul freight differ in operational structure and economic exposure. Don't lump them together.
2. Stress Testing: Incorporate fuel cost volatility, driver turnover, and spot rate fluctuations into repayment models. At the time of writing, diesel costs $3.61 per gallon, down 11.4% from a year ago, a major swing that impacts profitability.
3. Evaluate Technology Adoption: Telematics (GPS, sensors, and onboard diagnostics) and safety tech reduce accident risk and can stabilize maintenance costs. Borrowers using such tools may be considered lower risk.
4. Focus on Financial Management: Companies with strong accounting practices, cash flow forecasting, and cost-per-mile metrics typically show higher resilience.
5. Ask the Right Questions:
   • How is the company training drivers?
   • What technologies are being adopted for compliance and efficiency?
   • Are there diversified revenue streams?
6. Utilize Publicly Available Safety Data: Use national motor carrier safety scores to assess borrower reliability.

We Can Help

Credit decisions in trucking must consider more than just the balance sheets. Banks and lenders benefit from understanding the operational realities of the industry and developing internal policies that reflect its cyclical nature. This means building distinct policies for local and long-haul freight, each with different capital requirements and risk exposures.

Despite recent volatility, the trucking sector remains a vital part of the U.S. economy. For financial institutions, this is a call to understand and support the industry’s long-term trajectory. The winners will be those who can zoom out, assess the full picture, and lend with confidence through the peaks and the valleys.

Elliott Davis can help financial institutions build better credit models, evaluate industry risk, and support lending strategies tailored to transportation. Download our PDF on the topic, watch the full webinar replay below, or contact our team today.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.