A recent webcast hosted by Jeff Tucker, president of Haddonfield, N.J.-based Tucker Worldwide, the nation’s oldest freight brokerage, provided a detailed overview of the current state of the domestic trucking environment.
Tucker kicked off his presentation by describing market conditions as “red hot right now,” for various reasons.
One reason has to do with more freight moving in 2021 compared to the same period a year ago, as the market is roughly 12 months into a pretty significant increase in freight activity and a resulting capacity crisis. And this is also reflected in the rate environment, too, to be sure, he added.
“Contract pricing for longer-term contracts—between shippers and carriers and shippers and brokers—are way higher than anything we have previously seen before,” he said. “It is the same deal on the reefer (refrigerated) side, with contract pricing way higher than at any other point it has been in history, according to DAT data.”
Citing data over the last several months from Truckstop.com, for the top 100 U.S. truckload dry van lanes, going back to September 2020, rates has been hovering at, or below, $3 per mile.
“This is my 30th year in this industry, and I am dumbfounded by the fact that things are staying at that level, of course we never could have foreseen the events of the last year,” said Tucker.
Looking at demand for truckload van services, Tucker cited data from Morgan Stanley showing how, in 2021, things have flirted with, and far exceeded the worst capacity crisis in history, which was in 2018.
“For several of the last few weeks and months, we have been well in excess of the of the worst capacity crisis in history for most of the last year,” said Tucker. “We have been spending time in that stratosphere, so to speak.”
As for spot market pricing, Tucker observed that current spot market rates, like the contract market, are way above what has ever been seen before, with the case being the same for spot reefer rates.
Using restaurants recently opening to full capacity, or in the process of now, Tucker commented that prior to that the food supply chain was completely upended roughly 15 months ago.
“Things kind of got going in certain areas and then pulled back, so where this is going is anyone’s guess, but the food services sector is nowhere near where it wants to be, and the reshuffling of that deck is far from being finished,” he said.
Regarding other market trends, Tucker commented that with FedEx Freight initially planning to shudder service to 1,400 shipper customers in mid-June before eventually walking that plan back, demonstrated that FedEx Freight and every other LTL carrier are not really going to make a material change in behavior, as there is no other choice.
“Their [LTL carrier] systems are deluged right now and don’t have enough boxes with wheels underneath them, as well as the people that drive them and work in the distribution centers to handle the volume,” he said. “This is a significant challenge and something that all LTL carriers are dealing with. Everyone is slammed, many providers (LTL and otherwise) are instituting surcharges now. It is really everywhere you look.”
As for some good news, Tucker pointed out that there is some decent driver hiring momentum occurring, which he described as a “sigh of relief” for larger fleets, as driver applications turned positive for the first time in a long time, up 13% in June.
Tucker noted how the American Trucking Associations (ATA) has observed that 60,800 drivers are needed immediately, with that figure expected to grow to more than 160,000 over the next few years, by 2028.
“I am always cautious to interpret what the ATA said on this, because it is a trade association and represents its members,” he said. “If you look at data from the FMCSA, it says that the nation has hired and attracted well more than that 160,000 by 2028. In fact, just this year, there have been 385,000 drivers hired to the national driver pool, with about 3.14 million drivers in the for-hire fleet. They just happen to not want to work with the largest fleets…and are going to smaller fleets for the most part, with huge [driver] churn happening at the largest fleets. You then see that the only way for these large carriers to grow is through acquisition.”
Those acquisitions have been apparent for some time now, especially in recent weeks, with Werner acquiring 80% of ECM Transport and Knight-Swift acquiring AAA Cooper, among others.
What’s more, he said there is more of a pattern occurring in which drivers are leaving their long-term carrier employers to go to competitors, which he said is atypical.
“Drivers are the tail wagging the dog today,” he said. “We have talked a lot over the years about how important it is to treat drivers with respect, with things like a lounge, clean restrooms, parking, and those kinds of things have never been more important. As a retention tool, carriers are saying ‘we cannot serve that customer any longer, because we are going to lose our drivers.’”
In terms of how things could play out from here, Tucker looked back at past capacity crises as a guide.
“The first capacity crisis, in my career, was 2003-2005, which was really the first one since deregulation,” he said. “That took about a year-and-a-half and was driven by ELD and the economy. 2014 was the next one, due to the Polar Vortex occurring during a growth cycle for the nation’s longest economic recovery and took about six months to work itself through. The next one, which felt like 2003, was 2017-2018, which was a little bit of stimulus and ELD, during a growth cycle and towards the end of the ten-year long economic recovery. That one took about 16 months to work itself through.”
The pandemic-induced 2020-2021 capacity crisis, though, is somewhat different according to Tucker, due to the impact of the pandemic.
“All supply chains were upended [in March 2020], completely upended,” he said. “Carriers and shippers, manufacturers, importers, and exporters, and just about everyone, had to reimagine their supply chains. We had never seen anything like that. New contracts, new relationships, and new industries were met with contracts through suppliers. Then over the course of the next 15 months, the churn, the turnover, and the pivoting in our economy and the supply chain evolutions each of our companies have gone through are still working themselves out. In many areas of the country, we have just opened up restaurants to full capacity and are coming out of this thing. We are in a huge economic boom right now, and supply chains are changing. That is unprecedented as well. We are one year into this capacity crisis, and I don’t think anyone is anticipating an end before the end of this year.”