The current trucking market may be making some nostalgic for 2018.
Last year, shippers had to fight to secure sufficient truck capacity. This year, the tables have turned, and brokers and carriers are the ones calling around to find freight.
Long haul trucking spot rates are 20% lower than last year. The Cass Freight Shipments Index has been down since December 2018. CH Robinson said its average routing guide depth per tender was 1.2 in the second quarter, among the lowest ratios in the past decade. And meanwhile bankruptcies are creeping up without seeming to have any effect on the overcapacity.
So how did we get here? And is this, as some have called it, a “trucking apocalypse,” or just a predictable swing in a cyclical market?
How We Got Here
In a word? Over-correction.
Last year, the market was facing a capacity shortage. This was great news for drivers and carriers: driver wages and incentives shot up. New drivers came out of the woodwork, and new fleets launched: the for-hire trucking industry added 26,500 more trucks available for dispatch since November 2018, a growth of 1.8%. Eager drivers were told there is a perpetual driver shortage.
Now, unsurprisingly, there’s a glut of capacity– and carriers have lost their pricing power.
Despite several bankruptcies this year, including Falcon Transport, a carrier with about 700 trucks, this overcapacity hasn’t been dented. That’s because bankruptcies tend to transfer capacity, not reduce it– other carriers simply purchase the folded enterprise’s assets, and drivers usually get hired elsewhere.
In addition to this surplus, wage increases for drivers have grown by double digits, insurance renewal rates have gone up, and the equipment is more expensive to maintain than it once was. Meanwhile, the manufacturing, construction, and retail sectors– all heavily reliant on trucking– showed sluggishness in the first quarter of 2019. The US-China trade war has also made shippers hesitant.
Relief on the Way?
However, multiple sources ave predicted an upswing. And in truth, last year’s freight market set an unusually high bar for growth– when compared with volumes of prices of 2017, 2019 data doesn’t look so bad. Rates are even up in some places, especially in the Midwest and Northeast. According to Werner CEO Derek Leathers, “we are six months out, if these current trends continue, of having us come back into balance.”
Third-party logistics provider Coyote Logistics make some even more concrete predictions. They predict that, while contract rates will turn negative before the end of the year- going down as much as 5%– they’ll recover again in mid-2020. The spot market, on the other hand, they say has already hit rock bottom last quarter and can be expected to keep improving through the end of the year.
The only way to correct right now is either more freight volume or fewer drivers. And to that end, it may be regulations that are the market’s saving grace, as new ones over the next six months are likely to tighten capacity for shippers and potentially boost prices.
Rules requiring fleets to convert to ELDs could reduce productivity and therefore truck availability, the way the ELD mandate did in late 2017. On top of that, in early January a drug and alcohol clearinghouse will launch that carriers will be required to check before hiring drivers. Since, according to the Trucking Alliance, as many as 300,000 of all truck drivers on the road would currently fail a hair test, that may mean a reduction in the number of employees.
On top of that, the specter of bankruptcies is not as bad as it first appears. Most of the ones reported have been small carriers, fleets with fewer than 50 trucks, and the high-profile ones like New England Motor Freight were not due to oversupply but specific problems at those carriers.
“It’s not all gloom and doom,” said DAT Market Analyst Peggy Dorf. “We are in a typical seasonal transition, against the background of a loose-capacity environment. A lot of this pricing trend is cyclical, and therefore temporary.”
If that prediction is true, shippers who don’t act quickly to lock in 2020 rates cold experience sticker shock come next spring.
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