Owner-operators appear to migrate to large trucking companies
A common theme during the downward swing in the cyclical freight market cycle is the movement of owner-operators in and out of large fleets. This behavior typically follows spot market rates, and when rates are high, owner-operators will leave the safety of large fleets to chase spot market rates, and when rates collapse, they will return to large fleets for more predictable freight volumes and revenues.
Avery Vise, VP of Trucking at FTR, said a lot of those drivers are giving up their authority and working for larger truckload carriers, “either as leased owner-operators or as company drivers, which is understandable with diesel through the roof and the spot market frequently not getting fuel surcharges. Company drivers don’t ever worry about fuel prices, and even leased owner-operators get passed through surcharges” and, often enough, steep discounts at the pump via volume contracts their fleets negotiate.
This data appears to be supported by the recent Q2 earnings released by J.B. Hunt. In that report under the operating statistics by segment, its Truckload tractor count had a gain of 879 independent contractors year over year from Q2 2021. For reference, in Q2 2021 its independent contractor tractor count total was reported at 1,018 and increased to 1,897 by Q2 2022, an increase of 86%. This is notable as J.B. Hunt’s company-owned tractor count remained relatively flat, decreasing 3.4% or 26 tractors from 752 tractors in Q2 2021 to 726 tractors in Q2 2022.
However, not all large enterprise trucking fleets have seen an increase in independent contractors or total truck count. Knight-Swift reported in its Q2 earnings truckload operating statistics that its average truckload tractor count remained flat, only increasing 0.1% from 18,034 in Q2 2021 to 18,055 in Q2 2022. For most large trucking companies, the play appears to be expansion into other modes of transportation such as intermodal or LTL, which Knight-Swift accomplished in the past year with its LTL acquisitions of AAA Cooper for $1.35 billion and Midwest Motor Express for $150 million.
While publicly traded trucking companies do not always break down their fleet composition by segment, another factor to consider is this movement by owner-operators could also act as fleet replenishment, as the high turnover rates in the OTR segment can be filled earlier when the freight market declines. The challenge is pinpointing the exact number and extent of this owner-operator migration, as smaller fleets that are privately owned do not report their truck count information frequently.
Net revocations of trucking authority continue to rise
As truckload spot market rates decline and inflation continues to impact costs such as fuel and equipment, the environment for smaller carriers and owner-operators continues to deteriorate. One indicator of capacity leaving the market or joining a larger carrier is FMCSA data on net revocations of trucking authority.
But trying to find out what causes a net revocation can be tricky, as FTR’s Vise wrote in Heavy Duty Trucking: “Revocations occur principally because the carrier no longer has insurance, usually for nonpayment of the premium.”
Regarding the outcome of these revocations, Vise adds, “A surge in failures probably would have little effect on overall trucking capacity. Most of these carriers’ drivers probably will stay in the industry and simply move to larger carriers, either as leased owner-operators or company drivers. Rather than loss of capacity, consider this more as a shift of capacity from spot to contract.”
The movement out of the industry or into large carriers is the trickiest point to determine and FMCSA data appears to fall short. In an email to Fleet Owner, Norita Talor, director of public relations for the Owner-Operator Independent Drivers Association, wrote, “I’m not sure it’s possible to know from [FMCSA’s] data how many companies are leaving the industry.” Taylor explained some switch from driving under their own authority to leasing on to someone else.
Therefore, while the data is not perfect, we can use net revocations in combination with trucking spot market rates, contracted tendered load volumes and contracted tender rejection rates to try and piece together a picture of what is going on in the trucking business environment. Additionally, freight brokerages can provide good anecdotal evidence on smaller carrier activity, as many lack access to large volumes of contracted freight and rely on brokers to gain access into otherwise inaccessible parts of the freight market.
Market update: ACT For-Hire Trucking Index shows trucking conditions deteriorate
Trucking capacity continues to rise as truckload volume trends downward. The latest release from ACT Research’s For-Hire Trucking Survey shows a continued decline in both freight rates and trucking volumes.
Carter Vieth, research associate at ACT Research, noted in the report, “The reading shows volumes continuing to contract, as sustained inflation and high fuel prices erode consumer confidence. Substitution effects are an important factor weighing down freight volumes, as consumers choose travel instead of goods spending.”
Regarding the supply-demand balance Vieth said it “reflects loosening in the trucking market and a late stage in the freight cycle. With improving capacity and slowing freight volumes, the pendulum has finally swung from tight to loose. Recent entrants reliant on spot rates will struggle, and their exit will set up the next tight market.”
This data supports FreightWaves’ Outbound Tender Rejection and Volume Index, which showed a deterioration in trucking conditions beginning in Q1. As more trucking capacity entered the market, geopolitical events that contributed to inflation in goods and fuel prices created a situation in which the rates that supported new trucking entrants are no longer sustainable. The trend to continue to watch will be if these volumes and spot rates bottom out or continue to decline in the coming months.
FreightWaves’ SONAR spotlight: For many truckers, it’s a slow, slow summer.
Summary: If they aren’t denied outright, detention fees can cost brokers and shippers anywhere from $50 to $100 per hour. Currently, the average wait time for drivers (WAIT.USA) is just north of two hours, but certain markets are tighter than others. Notably, wait times in Atlanta jumped 20 minutes in the past week alone. The heavyweight reefer market of Lakeland, Florida, just came off its peak of three hours but remains one of the slowest-moving markets overall. Finally, East Coast port markets are a bit quicker than their West Coast counterparts, as wait times in Elizabeth, New Jersey, are nearly 30 minutes lower than in Ontario, California.
The Routing Guide: Links from around the web
U.S. Bank: Freight shipments and costs step higher in Q2 (FreightWaves)
China’s trucking fleets hit by Covid strain BA.5 and strict driver testing, slowing global trade (CNBC)
California offers up to $500,000 for purchases of zero-emissions equipment (FreightWaves)
FreightWaves reports 2Q results with 91% y/y growth and appoints SaaS veteran as chief revenue officer (FreightWaves)
ATA reports truck tonnage up 8% year-over-year (Commercial Carrier Journal)