There is a cyclical element to the conditions required in order to make a profit in trucking. Rates climb when there is a lot of freight, and truckers buy more trucks to seize the opportunity. However, at some point, freight levels drop and there are too many trucks available to transport it. It is at this point in the supply and demand cycle that some truckers leave the industry. Then do it again.
The “up” cycle has been going on for over a year. As is customary, spot prices jumped first, prompting truckers to increase their fleet size. In addition, in 2021, a record number of new carriers, most of which were one-truck companies, were licensed. Following the trend, carriers reported record-breaking quarterly and yearly results.
Because of the scarcity of parts and components, particularly semiconductors, truck manufacturers were unable to meet demand (the current waiting time for new rucks is close to 11 months). Inventories of old trucks fell to record lows as buyers snatched up what they could find.
Due to the lack of available vehicles, the freight market saw a prolonged “up” cycle of more freight and higher rates. As a result, the fun continued indefinitely until recently.
Now, though, you’d better buckle up, because the rollercoaster ride is about to begin.
- Spot prices were the first sign that things were about to shift. Rates are more volatile when freight is traded on the open market. Rates rise when freight (demand) exceeds supply. For the past few months, though, things have begun to turn around.
- There was a 2.2% increase in the number of spot loads posted on DAT’s board between February and March.
- There was a 29.0% increase in the number of trucks searching for loads on the DAT boards. That’s not ideal.
- A 2.2% drop in van load spot rates occurred in March, and they’ve already dropped nearly as much in April. In March, refrigerated rates fell by 3.3%. In March, flatbed loads were the only ones to see an increase, rising by 6.9%.
Similar findings have been reported on Truckstop.com. According to the site’s Market Demand Index, the ratio of loads to trucks in their system has fallen to its lowest level since December.
Until now, the decrease in the contract side hasn’t been as obvious. The American Trucking Associations (ATA) announced a 2.4% increase in its for-hire Truck Tonnage Index for Marc. , The eighth consecutive month of gain. Members of the American Trucking Association (ATA) are typically larger companies that specialize in hauling contract freight.
The Cass Freight Index for Shipments rose by 2.7% in March, according to Cass Information Systems. In March 2021. The index of expenditures indicated a rise of 33.2% over shipping expenditures from a year earlier. Trucking, pipeline, rail, air, and ship shipping are all included in the Cass Indexes.
Then there’s the matter of how much diesel fuel it takes to get there. Everyone’s situation is worsening because of the high cost of diesel.
The national average price for diesel fuel was $2.85 per gallon in March 2020, and it decreased to less than $2.40 as COVID-19 regulations cut demand. The average price of a gallon of gas had climbed to $3.07 by March 2021. At $5.25 in March 2022, it had increased by more than 71%.
Petrol prices haven’t risen since Russia invaded Ukraine. Russia, which competes with Saudi Arabia for second place in global supply, provides about 11% of the total (the U.S. is first). In an effort to dissuade Russian aggression, the United States has implemented new sanctions that have driven up the price of diesel. War machines such as tanks, planes, and ships consume enormous quantities of petroleum, further restricting the global supply of the resource.
Inflation is another factor that will have a significant influence on the freight scenario. It had been nearly a decade since CPI had grown at such a 7.9% annualized rate. March’s figure is likely to be higher.
There is little doubt that rising oil costs are a factor in rising prices, but they are not the only factor. The Consumer Price Index (CPI), which excludes food and energy, has risen by 6.4%.
All of this is bad news for inflation and the trucking industry. A downturn in the market and its severity are the subjects of intense study by market analysts. Another shift is in store for truck drivers according to Freightwaves in an April 14 piece. Trucking boom-bust cycle, according to Wolf Richter’s “Wolf Street” website on April 3: “next phase begins.”
There is evidence that the freight market is entering its late-cycle phase, as reported in an April 18 news release from ACT Transportation Services Inc. Predictions of doom and gloom from ACT President and Senior Analyst Kenny Vieth may be exaggerated. Although definitely a lot of truth to it.
“Based on what we know right now, we think it’s going to be extremely shallow,” he said of any supply-demand relationship correction.
Conditions for trucking are expected to worsen, regardless of whether the upcoming downturn is a “bloodbath” or a “shallow correction.”.
The next few months will reveal just how terrible it gets and how long it lasts.
Conclusion
Rocky times are ahead for the trucking industry. However, it’s also an opportunity to thrive and flourish in certain areas. The trucking industry will not cease to operate completely regardless of its challenges. Trucking companies should focus on the things they do well and have done so historically. The things that they can control rather than attempting to change the trajectory of things they can not control.
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