Market Analysts Say Trucking Capacity Has Peaked

The trucking industry, and the supply chain as a whole, are in an upcycle, but analysts suspect that the industry has reached its peak.

Vesna Brajkovic・Managing Editor

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April 15, 2021

Market Analysts Say Trucking Capacity Has Peaked — Data from the Council of Supply Chain Management Professionals’ Logistic Managers Index shows that between May 2020 and February 2021, inventory costs, warehouse prices and transportation prices were between 27 to 39 points higher than the breakeven number.
Graph: CSCMP

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The trucking industry, and the supply chain as a whole, are in an upcycle, but analysts from Truckstop.com and Transportation Futures suspect that the industry has reached its peak.

Data from the Council of Supply Chain Management Professionals’ Logistic Managers Index shows that between May 2020 and February 2021, inventory costs, warehouse prices and transportation prices were between 27 to 39 points higher than the breakeven number. This index is a good indicator of the entire supply chain market, said Noel Perry, a transportation economist from Transportation Futures, during a April 15 webinar hosted by Stifel called “What Lies Ahead for the Truck Freight Market.”

As far as trucking specifically is concerned, since the third quarter of 2020, spot truck rates have risen above the five-year average between 2015 and 2019, according to Brent Hutto, chief relationship officer at Truckstop.com.

The increase has been driven by a manufacturing boom during the COVID-19 pandemic, with steady availably of household disposal income that consumers shifted from service-based purchasing (like travel) to hard goods that move by truck. But that’s not likely to continue at the same pace for the rest of the year.

Perry and Hutto agreed that it looks like trucking has reached its peak capacity. Which, Perry stressed, doesn’t mean it’s not going to be “spectacular year.” Just that it won’t be any more spectacular than it already is.

“These things happen when [you have] strong demand and weak supply,” explained Perry. “Capacity peaks happen when there is an acceleration and the industry can not keep pace.”

Why is pressure so tight on trucking? A cumulation of intertwining factors.

1. Tight Capacity

With about 40% fewer drivers graduating from commercial driving schools during the pandemic, and a further 50,000 drivers lost through the Drug & Alcohol Clearinghouse, Hutto said this has put pressure on an already tight market.

2. Consumer Purchasing

During the pandemic, consumers were purchasing more hard goods in comparison to service-based goods, and shifting to online sales. Up to 31% of consumers were purchasing online in the U.S., according to Hutto.

“Every goods purchase hits a truck, and that creates a lot more load volumes in the market, which creates a tightness in the marketplace,” he said.

3. Changing Inventory Levels

During the pandemic, many manufacturers were caught short on product as consumer spending habits changed. This led to manufacturers needing to warehouse more things because they didn’t want to get caught short on product again. In turn, businesses were warehousing more items, which lead to warehouse capacity being at an all-time low.

4. High Rates

Rates were at an all-time high going into this year, while traditionally they usually go down in November in December. In typical times, the low rate meant that the negotiation for contract freight and some spot freight tended to be at about 1 to 2%. But in 2020, the average shipper had a price increase of between 8 and 15%, according to Hutto.

“That is a remarkable increase when it comes to the market,” Hutto said. “It’s another indicator of tightness because the carrier had the advantage in negotiating those contracts.”