Werner sees a decent peak season, capacity shakeout coming

He believes that those rates are too low and estimates that fleets more than 20% exposed to the spot market are operating at operating ratios (ORs) at 100% or worse. OR is a key financial metric used by TL companies to measure profitability prior to paying interest and taxes. A 100% OR means that the carrier was break-even before paying below the line items like interest and taxes.

Additionally, TL insurance premiums continue to increase. Leathers said that some of these carriers are likely to see renewals with increases as much as 70% to 150%. An increase most fleets can’t absorb.

Leathers said that truck capacity is being corrected currently as truck order rates have declined precipitously and cancellations have increased. He said that there is an abundance of readily available data that is helping to quicken decision-making throughout the industry suggesting that the cycle could play out faster than in the past. These occurrences, along with new regulations, could force more carriers to exit the industry.

He said that Werner recently converted to full implementation and compliance with electronic logging devices (ELDs). He believes that the mandate from automatic onboard recording devices (AOBRDs) to ELDs is more cumbersome than many think and could curb capacity/productivity by 1% to 3%. He said that some of the industry has converted to the required devices, but he doesn’t believe a large portion are operating them and fully compliant yet. He indicated that the pain will come once they turn on the device.

Further, he believes that a national drug and alcohol clearinghouse, which may eventually require hair testing in lieu of urine analysis for drug testing, could have material capacity consequences for the industry. He said that as drug test failures begin to be reported in January and carriers query the database on potential hires, it will have an impact on driver hiring and availability. Leathers believes that if hair follicle testing is approved as an acceptable vetting tool, whether or not it’s mandated, it will likely become the norm throughout the industry. The thought is that no carrier will want to face a jury without requiring hair follicle testing of its drivers once the method is approved and accepted.

Leathers believes that there is a “large swath of the industry” that is operating at a loss. He said that the recent uptick in spot prices will save some carriers, but he believes that “they’re on life support either way.”