The U.S. trucking industry is beginning to show signs of life after one of the deepest recessions in history, with excess capacity, rising fixed costs, and increased competition for limited cargo capacity driving prices down. Demand is recovering, although demand remains subdued.
In the second quarter of 2024, U.S. shipment requests increased by an average of 9% year over year. Bid rejections, a measure of carriers’ willingness to accept packages, increased 1.3% year over year. Transportation capacity is gradually starting to tighten, according to data from logistics intelligence firm FreightWaves.
“I think the worst is behind us,” said Bob Costello, chief economist at the American Trucking Associations.
The industry suffered a “freight recession” in 2022 after a surge in consumer products during the pandemic led to one of the largest increases in trucking demand. This is because inflationary pressures led to a decline in personal consumption, forcing a reduction in cargo volumes. And the price.
“Interest rates are in free fall” in 2022, Michael Castaninet, president of North American ground transportation logistics company CH Robinson, said in an email. “We’re seeing an expansion of the valley.”
The surplus of trucks left over from the pandemic boom is not enough to meet demand, leading to a situation where companies are still experiencing capacity overhangs. And corporate performance has yet to show any major recovery.
JB Hunt, the industry’s largest U.S. trucking company, announced on July 15 that its operating profit fell 24% year-on-year, missing profit estimates for the fifth consecutive quarter. The company blames underutilization of assets and flat rate pricing as the main reasons for the decline in profits.
“Shippers have a choice of both modes and providers to move their cargo, so we continue to see oversupply across all modes,” Spencer Frazier, J.B. Hunt’s executive vice president of sales and marketing, said in an earnings call. ” he said. “Capacity is not the biggest concern at the moment, but there is a recognition that this will change at some point.”
But as consumer demand continues to steadily increase, the trucking industry expects to see higher interest rates in 2025, especially if interest rates fall, according to Avery Bice, vice president of trucking at FTR Transportation Intelligence. He says he is optimistic that momentum can be expected.
“By the middle of next year or the end of next year, for example, we could be back to a very comfortable situation for carriers,” Vice said.
However, structural issues remain for trucking companies, particularly regarding cost and competition.
The industry’s marginal costs, excluding fuel surcharges, rose more than 6% in 2023, according to an analysis published by the National Transportation Research Institute.
Tony Mulvey, senior analyst at FreightWaves, said insurance and maintenance costs will rise by a third, primarily due to higher interest rates, the introduction of new technology and an increase in truck-related accidents, increasing spending on small and medium-sized fleets. He said pressure was mounting. owners.
“That’s the killer for trucking companies,” Costello explained. “Their cost inflation is still going up significantly.”
Despite rising costs, small trucking companies have been able to weather the tough market thanks to cash reserves from a surge in freight during the pandemic, according to Vice, but more than 25,000 trucking companies have already The company is said to be withdrawing.
Mr. Castaninet pointed out that the smallest companies with less than five trucks account for more than 85% of the market.
The growth of light carriers has been primarily driven by increased access to commercial driver’s licenses and technology that enables “excess utilization” of cargo capacity.
Rather than relying on existing relationships with brokers and shippers, drivers can leverage digital platforms to see where available loads are and accept loads on their own.
As a result, the number of carriers on the market remains high, freight volumes are spread across a wider range of companies, and price competition intensifies.
Vice pointed out that carriers are currently playing a “game of chicken”, with large companies waiting for small and medium-sized companies to exit the market, shouldering rising costs and reducing the industry’s oversupply. He pointed out that by delaying production, the company is avoiding a decline in its own production capacity.
“Many of these businesses are very, very reluctant to make cuts because they expect a recovery,” he said. “But I think most people expected it to recover by now.”
But as supply shrinks and demand accelerates, forecasters predict an improvement in interest rates is on the horizon.
“There’s a withdrawal happening,” Mulvey said. “From a shipper’s perspective, if you’re looking to reduce costs, those days are largely gone.”
