Freight demand is outpacing the trucking industry’s ability to attract drivers and acquire new equipment, which bodes well for rates going forward.
Industry forecaster FTR gave a market update July 8, which painted a bright immediate future for trucking. Avery Vise, FTR’s vice-president – trucking, noted capacity utilization is near 100%, well above the 10-year average of 91%.
Spot market rates remain near record highs and contract rates are strengthening, Vise noted, pointing out the spot market provides real-time insights into rates but accounts for only about 30% of the freight hauled.
“Rates are close to record levels and are showing no clear signs of turning,” he said of the spot market.
The dry van and refrigerated segments are enjoying the strongest conditions, while flatbed has stabilized. Vise said FTR is projecting truck loadings, which have already returned to pre-pandemic levels, to grow about 7% this year. Meanwhile, he added, the industry will be challenged to increase the driver pool by 7%, which means truck utilization is expected to remain high.
“We see a strong rate environment for quite a while,” said Vise. “There is not much good news for shippers based on our current forecast.”
Conditions that are limiting the industry’s ability to add capacity include: a backlog of new entrants due to Covid-related closures of state licensing agencies and training centers; a plunge in the U.S. labor force participation rate due to generous unemployment benefits and early retirements; increased job opportunities in other industries; and the drug and alcohol clearinghouse that has sidelined more than 60,000 drivers so far this year.
The U.S. trucking industry is down about 38,000 drivers, or 2.5% seasonally adjusted, compared to February 2020.
Meanwhile, new trucking start-ups are surging to record levels in the U.S.
“Most of these [new] carriers are very small,” Vise said. However, they represent about 157,000 drivers over the past year.
Normally, such lucrative conditions for carriers would see them adding capacity. However, supply chain issues are limiting truck and trailer makers’ ability to keep pace with demand.
Don Ake, FTR’s vice-president – commercial vehicles, said truck and trailer demand this year is similar to 2019, but build rates are much lower. On the truck side, he said this can be chalked up to a shortage of semi-conductors – there are 15-35 in each Class 8 truck – while trailer makers are experiencing shortages of other materials and labor.
Ake noted media and analyst reports on the semiconductor shortage are inconsistent, with some saying the backlog should ease in August and other saying they’ll last much longer.
“If you can’t get enough semiconductors, you can’t build enough trucks,” Ake reasoned.
Comparing 2019 Class 8 demand and build rates to this year, Ake noted there’s about a 40,000-unit gap in production, or 26%, which highlights the impact of the supply chain issues manufacturers are facing this year.
“There is no clear progress being made to catch up,” he said.
The general economy in the U.S. continues to perform well, Vise noted, and the elements of GDP tied to goods transport are outperforming overall GDP growth.
Vise noted this could level out as consumers begin spending more money on services rather than goods, as consumer spending habits return to pre-Covid norms. But then again, noted Vise, increased spending on services improves employment and puts more money into consumers’ pockets.
“We are already seeing spending on services growing faster than on goods,” Vise said. “Will it mean a collapse in goods spending? We think that’s very unlikely.”