Truckload: The roller coaster ride continues

The $306 billion truckload market is an industry of peaks and valleys.

Traditionally, executives have steeled their operations to cash in on the good times, upgrade their equipment and operations, build some reserves and try to ride out the inevitably slower periods—until COVID, that is.

The pandemic has created a ricochet effect, industry leaders say, that has whipsawed them from nearly no demands in some geographic areas and product markets to overwhelming surges in other manufacturing and retail sectors.

Lack of available drivers, an expected rebound in automobile-related freight and soaring demand in some markets has created extremely tight TL capacity, executives say. “The market is very robust,” says Schneider president and CEO Mark Rourke. “We see it building, even though some public indices show it slowing, but we would expect we have some carry into 2022.”

Top TL industry officials agree that they’ll be riding the crest of the strongest trucking market in more than 20 years as they enter 2022. At the same time, they’re wondering how to keep their trucks seated with qualified drivers in an era when their equipment, insurance and fuel costs have risen relentlessly since the pandemic shutdown ended more than a year ago.

“Volumes are continuing to go through the roof,” says Greg Orr, president of CFI, a unit of Canada-based TFI International, parent of North America’s 17th-largest truckload operation with roughly $500 million in revenue in 2020. In one morning in September, he reported that his operation was 115% to 120% pre-booked. CFI at one time this summer was turning down 3,000 loads per week.

Avery Vise, vice president of trucking for research firm FTR, says that the feeling in the industry is that the current, strong market conditions must come down at some point—but nobody knows when that is or what might cause it. “We actually can’t figure out the dynamics that would cause that,” he adds.

This bullish truckload boom has already gone on longer than the booms of 2017, 2014 and 2004. “No boom has typically lasted as long as this one,” says Vise. “We’re more than a year into this, and it’s rather unusual. It’s marked by things such as a surge in new entrants, and that has created an interesting dynamic because it’s a reflection of the strong market and a cause of it as well.”

According to Derek Leathers, president, chairman and CEO of Werner Enterprises, the nation’s fifth-largest truckload carrier, that demand is still “very strong, and it’s been strong throughout the year. There’s no waning.”

As 2021 nears its close, let’s take a deeper dive as to why TL rates still are strong, what’s driving demand, and we’ll explore some of the major carrier headaches as they try to fulfill that demand. We’ll even take a stab at predicting how high TL rates may go in 2022. But first, how did we get to where we are at this point in 2021?

Drivers and capacity

While the truckload industry didn’t necessarily invent the labor shortage, it certainly has been plagued by it. In fact, it’s at least a 20-year-old problem in the sector.

But now, in addition to more stringent qualifications, such as pre-employment drug- and alcohol-screening, the industry is compiling its own nationwide database of disqualified drivers because of safety and other concerns.

But that’s not all. Many drivers who formerly worked as company drivers, sensing it’s a good time to try and cash in on this strong market, are incorporating themselves as independent contractors. According to data compiled by FTR, in the month of May more than 11,000 drivers registered as new business owners—that’s a record and more than three times the usual amount in a month.

And keep in mind that these are not all new entrants to trucking. Though it’s still unclear, many are thought to be company-leased drivers who, maybe for the first time, are testing the waters as independent business people.

This is occurring at the same time that total payroll in trucking was down 2.2%, according to Vise. “We’re not down in drivers,” he says. “I doubt we’re down by drivers at all. I think it’s probably shifting. It’s caused some disruption because the company fleets are losing drivers due to COVID, retirements and other factors. Theoretically, this rationalizes over time.”

When spot markets cool noticeably, some of these new entrants will likely leave, and that could cause some disruption, industry veterans say. “It’s a good thing for the industry because it’s providing drivers,” says CFI’s Orr. “However, the challenge I’m struggling with is the fact that people are coming in and seeing rate structure and throwing money around that’s extremely out of the norm. High water hides a lot of stumps. We’re in a high-water stage.”

Most fleet executives say the situation around finding qualified drivers has worsened in the past year. Several factors are cited, among them:

Demographics. As the industry work force continues to mature, more and more drivers are leaving.

COVID-19. It has pushed some to early retirements. In the last six months, drivers went out on short-term disability and didn’t return as they did in the past.

Government payments. As emergency payments of $2,000 and also a $300 per-child per-month tax payments have increased, driver rolls have decreased.

General staffing shortages. “We have an unemployment issue that’s going to throw fire on the issue,” says Orr. “I don’t know how many people are focused on this until we start seeing a lot more shelves with empty products.” With thousands of infrastructure-related jobs coming on line with President Biden’s $1 trillion spending plan, trucking executives agree that it will most likely create more pressure on the pool of eligible drivers.

Planning? That’s so 2019

Truckload executives say that the internal budgeting process is the most difficult they’ve seen in more than a generation. Five-year plans are out, as annual plans are hard enough. “Budgeting in 2021 is the craziest year in my 25 years in the business,” adds Orr.

The main issue is how to meet the growing expenses of trying to grow a fleet at a time when original equipment manufacturers (OEMs) are already limiting Class 8 production due to the worldwide computer chip shortage that some believe will creep into 2023.

“I still see capacity being challenged, but at the same time I continue to hear in the industry that everyone’s expenses are going up—tolls, equipment, insurance and there’s a $1,500 tractor surcharge from OEMs” adds Orr.

And now trailers. Yes, even the 53-foot trailer—basically just a wooden floor with axles and a roof—is in high demand. Some large TL carriers are having their trailer orders cut into a fourth with a 25% to 30% surcharge on trailers because of rising costs of raw materials and labor. There were only 8,000 U.S. orders for trailers this July compared to 18,851 in July 2020, according to ACT Research.

According to TL executives, as long as COVID sticks around, these challenges will endure and equipment manufacturing will lag far behind demand. Indeed, the OEMs have been working overtime, but still can’t meet surging demand. When new equipment can be delivered, it’s often three to six months behind schedule. Plus, if a truck breaks down, getting the right parts can be a challenge.

“Sometimes drivers are put into hotels for weeks at a time,” Orr adds. “Others are just quitting, saying that they’re tired of it and they’re just not going to take it anymore.”

Caution: Construction ahead

Supply chains already are stressed, if not broken in some instances. A $1 trillion infrastructure spending package could create a decade of road construction. While truckers welcome improved roads and bridges, there are concerns about construction bottlenecks and delays.

And then there’s inflationary worries that could put the brakes on any economic recovery. “There’s no way this country can continue to go on with spending and not have inflation,” says Orr. “That means less disposable income for everyone.”

U.S. Chamber of Commerce senior economist Curtis Dubay said in July that there was a “reprieve” on inflation, but it could accelerate this year and into 2022. “Supply chains are still backed up, and consumers still have ample savings to spend down,” he stated. “Those issues will continue to keep inflation elevated. On a more permanent basis, businesses are still struggling mightily to add workers, as the record 10.1 million job openings attests.”

Dubay added that this is by far the record amount of job openings the U.S. economy has ever had. “This historically elevated level makes clear that we have a severe worker shortage that threatens what should be a prolonged economic boom,” he said. “The biggest problem is getting workers to fill the historically large amounts of open jobs. Congress and the Biden Administration should be focusing on getting people off the sidelines and back to work.”

The rate situation

The fact remains that truckload rates will rise in 2022—the question is by how much and for how long. Analysts say that the way to look at TL rates is they may be reaching a peak in 2022, but the downward slope is extremely shallow.

That is, if they decline, it will take a while, perhaps well into 2022, before rates fall year over year. In the meantime, Schneider is looking for rates to rise “mid-single digits, maybe a little higher,” Rourke says.

“Our forecast is for total blended rates [spot and contract] to be higher,” predicts FTR’s Vise. “Spot will be down relative to 2021, but contract will not be. For shippers, this will be another year of pain.”

TL rates will rise “for sure” next year, adds Werner’s Leathers. “There are inflationary pressures. Tractors, trailers, tires, insurance, fuel, and driver wages are all going up. There’s upward pressure on rates, especially given capacity constraints and imbalances that we project well into 2022.”

Leathers adds that because this TL demand situation is both supply-and-demand driven, “there’s not one thing that could turn the corner on this anytime soon. We’ll be in this well into late 2022.”