Freight Overcapacity: Trucking Market Faces Challenges in Recovery

 

The trucking industry continues to grapple with challenges stemming from overcapacity, which has constrained freight rates despite the economy showing better-than-expected performance. Key insights from FTR’s State of Freight webinar on May 8 highlighted the complex dynamics affecting the industry:

Key Takeaways:

1. Active Truck Utilization Recovery: Truck utilization, a critical measure of demand, has bottomed out and is beginning to recover.
2. Industry Shifts: The number of new trucking companies entering the market is now fewer than those exiting.
3. Rising Insurance Rates: Insurance costs have steadily increased over the past year, pressuring margins.
4. Upcoming Rate Increases: FTR anticipates a gradual increase in both spot and contract truckload rates.
5. Excess Inventory: There’s an oversupply of medium- and heavy-duty trucks sitting idle on dealer lots.
6. Impact of 2027 Emissions Pre-buy: Uncertainty surrounds how new emissions regulations will impact pre-buying behavior.

Economic and Industry Trends:

FTR Chairman Eric Starks noted that consumer spending remains above long-term trends, contributing positively to the economy. However, manufacturing, considered the “lifeblood of transportation,” remains relatively stagnant due to pandemic-driven disruptions and supply chain issues.

FTR predicts modest GDP growth, averaging around 2%, with transportation-specific growth expected to reach approximately 2.5-3%. This growth will be steady but unremarkable, leading to only modest freight demand increases.

Trucking Market Outlook:

Avery Vise, FTR’s VP of Trucking, noted that freight loadings remain flat but are expected to improve slightly by the third quarter of 2024. Despite improvements, overcapacity remains an issue, with 90,000 more carriers than before the pandemic surge. The market saw soaring rates in 2021, but capacity now outweighs demand, keeping rates low.

Rate and Capacity Adjustments:

Active truck utilization fell from a 100% peak in 2021 to around 88% in 2023, contributing to suppressed rates. However, spot rates have shown some volatility and are predicted to turn positive by the third quarter, with dry van and refrigerated rates seeing the most improvement. Contract rates, meanwhile, appear to have hit bottom and are beginning to stabilize.

Vise pointed out that higher operating costs, particularly in driver wages and equipment, have affected margins, and insurance rate increases are likely to exacerbate the pressure on smaller carriers.

Truck Inventory and Pre-buy Effects:

Dan Moyer, FTR’s Senior Analyst, highlighted the considerable inventory of trucks available on dealer lots. Class 8 trucks currently have a three-month supply in stock, while medium-duty trucks have exceeded 100,000 units, marking a historical high.

Fleets may be preparing for potential 2027 emissions regulations by stockpiling existing, proven truck models. This “pre-buy” effect could influence sales trends and delay investment in new, lower-emission trucks.

 

Source:

https://www.truckinginfo.com/10221307/trucking-overcapacity-still-constraining-freight-rates