We are seeing indications that the beginning of the end for truck capacity may be approaching. Truck orders spiked to 40,000 units in October, or double what is considered to be the replacement level. Following that record month came a 50,000-truck order board for November. As I have reviewed in the past, there are clear leading indicators that the increase in truck orders leads to future capacity increases, which turns the demand and supply equilibrium in trucking. I will be watching this metric as it moves the balance of power from carrier to shipper, as it has in the past.
Capacity, matching commitments, pricing and service will be all the parameters in play as we navigate through another dynamic freight market. However, this next shift will have some very big differentiators that are unique to a new future market, and market turnaround. As we all know, these turnarounds are inevitable! But to note, a few of the limiters and accelerators to the increased capacity story would be:
1. Will we find enough truck drivers to fill these trucks during a period where we have seen an increased number of unseated trucks in the current market?
2. Will the new increased orders turn into Freight Hauling Capacity (FHC), which matches driver availability to truck capacity? and
3. If all the stars are aligned, and we do get the drivers, and they do run at the pace we have gotten used to, will we have enough trucks to fulfill the demand of a US economy that is at full throttle after a vaccine in 2021?
Boy, lots of things in play during this new year we are about to embark upon. It’s confusing to me to see an industry that relies on a scarce capacity market to ensure some legitimacy in the supply chain for carriers. The fragmentation of that capacity dulls the overall impact of pricing elasticity when carriers negotiate pricing in either the high or low demand cycle. On the flip side of the equation, the shippers are usually Fortune 100 companies leveraging 3PL tools and tactics to employ against the fragmentation. So, the only true lever truckers can pull is to stay away from shiny things and not buy so many trucks which will inevitably come back to bite you in the ass!