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All Non-Essential Businesses Were Forced to Shut Down

March of 2020… As many manufacturers were considered non-essential, shipping was forced to stop, and all truck capacity struggled to remain open. Many manufacturers even switched to hauling groceries instead because groceries were listed as essential.

Truck Capacity Struggles to Remain Open as Shipping Volumes Decrease

May of 2020… Motor carriers can only survive for a limited time with low linehaul rates and the expenses of remaining in business. During the shutdowns, there was a lot of consumer fears, such as the toilet paper shortage, and consumer spending was focused more on at-home entertainment. As a result of limited travel activity, there was an over demand for the purchase of goods with a decline in the number of motor carriers.

Demand for Goods Rises with Less Carriers, Creating Price Premiums

July of 2020… For several months, supply and demand were even, but as consumers stayed home during the spread of Covid-19, the demand for goods continued to rise. The supply of trucks diminished, and many businesses began to reopen taking back the truck capacity, now causing a truck shortage. So, now we have a high demand for consumer goods, but a decline in truck capacity which resulted in a spike of freight rates.

Higher Rates Attract New Carriers and Shortage of Equipment Hits All Time High

January of 2022… At this point in time, shippers and brokers are battling for daily capacity and carriers have a choice of what lanes to run and how much to charge. The shippers and brokers have little to no leverage and are left to pay the rates or leave the freight on the dock. So, as rates increase to record highs, trucking companies begin to notice the need to add more equipment to grow their business. Trucks and drivers are added at a fast pace and new authorities are granted.

All the additional companies and drivers now create a shortage of trucks and trailers. The problem is only made worse by manufacturing issues creating the complex computer chips that run todays new equipment, limiting the production of new trucks that can be sold.

The truck prices skyrocket and the cost of used trucks are as much as a new truck.

The country witnessed a decline in Covid-19 cases as vaccinations became more accessible and the country is starting to return to the new “normal.” At this point, we now have a lessened demand for consumer products, truck capacity is rising. Stores like Target, who were keeping large inventories of products, start realizing there is no demand for these products and start to clearance out these goods. In addition, traveling starts to increase again.

March of 2022…Fuel prices start to increase but now more than ever in the past 2 years, Americans are traveling and have been spending less on goods, but more on travel and entertainment. With all the added truck capacity and consumer focus on entertainment, supply and demand strikes again, only now there is an oversupply of transportation capacity and less products to ship. With the fuel prices climbing daily, it would make sense that rates to carrier would increase but such low demand for truck capacity causes rates to drop weekly, even with diesel prices going over $6 per gallon. This begins the logistics cycle again. With rates low, Motor Carriers begin parking their equipment or closing completely.

Predictions for the Upcoming Year

Currently, there is still an imbalance of excess trucking capacity VS. a lack of product to ship. Motor Carriers who opened their doors at the height of freight rates ($5+ per mile) are finding it difficult to remain open and we are seeing a decline in truck capacity. With so many owner operators or small carriers closing, we will begin to see in the next 8-10 months a flip in the market. Enough carriers and trucks will have left the market that capacity will begin to tighten and truck rates will start to increase. While rate increases will start to appear, it is a slow process. Just like it will take 12-18 months for the truck capacity to equal or fall below load counts, it will take 12-18 months for the rates to once again peak.

Despite the circumstances, this is a normal logistics cycle. This peak and valley model usually happens every 4-5 years. Due to Covid-19, it was expeditated and we are seeing it transition faster than years prior. The message that carriers, brokers, and shippers need to remember is to save up for a rainy day. Rates are low for shippers, so save some of those savings for when truck rates rise!