The US trucking industry is beginning to show signs of life after one of the deepest downturns in its history, with demand picking up even as prices remain suppressed by excess fleet capacity, soaring fixed costs and increased competition for limited freight loads.
Requests for shipments in the US rose on average 9 per cent year-over-year in the second quarter of 2024. Tender rejections, a measurement of carriers’ willingness to accept loads, increased 1.3 per cent from the same period last year, meaning truckload capacity has slowly started to tighten, according to data from logistics intelligence firm FreightWaves.
“I do think the worst is behind us,” said Bob Costello, Chief Economist for the American Trucking Associations.
Following a consumer product surge during the pandemic that led to one of the largest upswings in trucking demand, the industry was hit with a “freight recession” in 2022, as inflationary pressures led to a decline in consumer spending and forced a reduction in cargo volumes and rates.
“Rates went into free fall” in 2022, Michael Castagnetto, President of North American Surface Transportation for logistics firm C.H. Robinson, said in an email. “We’re seeing an extended trough.”
The surplus of trucks left over from the pandemic boom was not met with sufficient demand, leading to a capacity overhang still being felt by companies today. And company results have yet to show much of a recovery.
US transporter J.B. Hunt, one of the largest firms in the industry, missed earnings expectations for the fifth consecutive quarter on July 15 with a 24 per cent decline in operating income compared to the same period last year. The company cited underutilisation of assets and flat pricing as the main drivers for low revenue.
“We still see oversupply across all modes with shippers having options on both mode and provider to move their freight,” said Spencer Frazier, EVP of Sales and Marketing for JB Hunt on the earnings call. “While capacity is not a top concern right now, there is an awareness that this will change at some point.”
But as consumer demand continues to rise steadily, the trucking industry looks optimistically towards rate gain momentum in 2025, particularly if interest rates come down, according to Avery Vise, VP of Trucking for FTR Transportation Intelligence.
“We could be back by, say, the middle of next year, late next year, to something that is very comfortable for carriers,” said Vise.
However, structural issues persist for trucking firms, particularly around costs and competition.
Industry marginal costs excluding fuel surcharges rose more than 6 per cent in 2023, according to an analysis published by the American Transportation Research Institute.
Insurance and maintenance costs have gone up a third, said FreightWaves senior analyst Tony Mulvey, primarily due to high interest rates, installation of new technology, and an uptick in truck-related accidents, increasing expense pressure on small-to-mid-sized fleet owners.
“That’s the killer for the trucking companies,” explained Costello. “Their cost inflation is still going up significantly.”
Despite the rising costs, cash reserves from the freight surge during the pandemic have largely allowed smaller carriers to survive the tough market, though over 25,000 trucking firms have already exited, according to Vise.
The smallest players, those with less than five trucks, make up more than 85 per cent of the market, Castagnetto noted.
The growth of small carriers has largely been driven by increased access to commercial driving licences and technology that has allowed for the “uberization” of freight loads.
Rather than relying on brokers and existing relationships with cargo owners, drivers can utilise digital platforms to see where available loads are and independently take on freight.
As a result, the number of carriers in the market has remained at a high level, spreading out freight volumes over a larger range of companies and increasing price competition.
Carriers are now playing a “game of chicken,” Vise pointed out, whereby larger players are avoiding their own capacity drawdowns by waiting for smaller firms to exit the market, bearing cost increases and slowing the reduction of industry oversupply.
“A lot of these operations have been very, very hesitant about cutting back because they’re anticipating a recovery,” he said. “I think most people, though, had anticipated a recovery by now.”
But as supply reduces and demand accelerates, forecasters predict that rate improvements are just on the horizon.
“Exits are happening,” said Mulvey. “From a shipper perspective, if you’re looking for cost savings, that time has largely passed.”
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