“As I See It” from the Trucking Activist – Capacity is Math

By: Jack Porter, Managing Director, TCA Profitability Program

This week we heard the results of Class 8 orders for June. As I have noted in the past, I strongly believe that the historic trends prove future capacity and demand. The June Class 8 Orders were a 23.2% increase over last year, and the largest order since October 2018. In addition, the level of orders was still 20% below the considered replacement pace that the industry needs to fulfill the capacity in the freight market. Thus, I don’t believe you need to be an economist to do some prognosticating on the future direction of freight rates.

We have seen a reduced rate of truck orders throughout 2019, and even lower during the 2020. The rate leads one to believe that the balance of 2020, 2021 and possibly 2022 will leave the Trucking industry in a short capacity to fulfill the shipping needs. As the industry starts to recover from the COVID crisis, we will embark on capacity constraints like we have never seen, including the most recent 2018 marketplace. The strength and relationship with strategic shippers and carriers will be critical in market going forward. Those shippers that rely on the spot market will have volatile pricing and possibly complete lack of supply to haul their freight.

The Owner/Operators will migrate to the spot market lure, and as rates increase, the Carriers, especially the small carriers will start buying trucks again, and then we will oversupply the market, and return to depressed rates in the next 18-24 months. The roller coaster will continue; however, the virus will have an impact on elongated supply reduction. Along with the virus concerns, the insurance costs will add to the supply of trucks in the market.

The trucking industry rate demand has a direct correlation with the number of trucks the industry buys, and currently we have been anywhere 15-40% below the considered replacement pace needed. With the same level of demand, or when the economy fully recovers, the industry will be faced with a chronic supply problem, it will be interesting to watch the dynamics over the next 6-18 months.