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Perry at TIA: Excess trucking demand hit 26%, returning to normal

At group’s closing session, chief economist sees ‘profound’ market change

The economics panel on the final day of the TIA annual conference. From left to right: Noel Perry, TIA chief economist; Mark Christos, vice president, Matson Logistics; Seth Clevenger, managing editor of features, Transport Topics; Tom Curee, senior vice president of strategy and innovation, Kingsgate Logistics Photo: FreightWaves

SAN DIEGO — The antitrust legal boilerplate, read or displayed at every session of the annual Capital Ideas conference of the Transportation Intermediaries Association, had a clear message: Don’t talk too much about truckload rates.

But how is that avoidable in a market where those rates are plummeting after a history-making 2021? Noel Perry, the TIA’s chief economist, gave the conference-closing overview of the declining market that the group’s members will face as they leave San Diego — a message that might have been different just a few months ago.

Or maybe not. As Perry noted, rates during the surge of 2021 moved well above the rate of growth in other key freight indicators, such as volume. “We are way above normal,” he said, putting the excess demand at 26%.

“That cannot be sustained long term,” he said. “What we’re living with is a truckload market that has extraordinary pressure to come back down to normal.”

The irony is that while 2021 was a great market for freight, average broker rates stayed relatively steady during the year. The gross margin percentage for brokerage houses with more than $100 million in revenue, according to the TIA, was 13.5% in the fourth quarter of 2021. A year earlier, it was the same. For the industry as a whole, the average margin closed out 2020 at 13.4%. It got as high as 14% in the third quarter before falling back to 13.4% for the final quarter.

That stability in margins even as rates were rising demonstrated that while brokers may have had a larger base number in their invoices, their percentage of the profits didn’t increase. 

But given the hefty average size of invoices in 2021, Perry told the audience, “You had an extraordinary, unusual year last year.”

The invoice per load for the entire brokerage industry, according to the TIA, rose from $2,004 in the fourth quarter of 2020 to $2,558 by the fourth quarter of 2021. 

In the second quarter of 2020, which included the first days of the pandemic and plunging spot rates, the average invoice was $1,564, according to the TIA. But during that quarter, the average broker margin was 16.1%, the highest level of any quarter in recent years. 

However, just one quarter later, in 2020’s third quarter as the trucking market began to rebound, margins averaged 10.2%, according to TIA data.

Market tightness in securing capacity is beginning to drop, “and even if the traffic doesn’t fall down, the pressure on prices is likely to be going down,” Perry said.

(The SONAR Outbound Tender Volume Index does show a significant downturn in freight volume).

Addressing a room full of brokers who regularly seek capacity through load boards with transparent bids, Perry told the audience that “the spot prices you guys are posting on the internet are back to normal.”

(The seven-day national all-in dry van rate as published by SONAR was $3.83 per mile on Jan. 9, its recent peak. On April 3 it was $3.29.)

“This marketplace is changing in profoundly different ways,” he said. “If you were shippers, you’d be on your feet clapping.”

But the brokers work with carriers too, and as Perry said, “you have to keep those two people together.”

“You’re not going to get the results you had last year by behaving the same way,” he said. 

Brokers were — and are — right in the middle of trying to secure tight capacity, and Perry addressed that while dismissing the idea that there is a driver shortage.

Reviewing the increase in freight volume, Perry noted that in an average year, just to stay even, the trucking industry needs to secure 1 million new hires. Perry said with volume at 26% above normal, “there is no carrier in the country that has the recruiting capability to add 26%.”

The extraordinary freight volume has been the cause of the driver squeeze, according to Perry.  “When we talk about the driver shortage, it is a demand surplus,” he said. “It is not suddenly that we can’t hire truck drivers.”

Recruitment efforts going forward will be in a market where Perry said there will be no growth over current levels in the truckload and intermodal sectors, and little to no growth in LTL traffic.

“These are conditions you’re going to have to get used to,” Perry said. “How do you make money when the traffic count isn’t going up and is more likely to go down?”

During the question-and-answer session, the panel was asked about the impact on freight markets if there is a significant “reshoring” of manufacturing capacity back to the U.S. 

Perry said there could be negative impacts to both ports and intermodal transportation that hauls freight coming in from abroad.

But Mark Christos, vice president of Matson Logistics, said reshoring might be able to help reduce the impact of what he called “deficit markets.” Those are regions where freight movement into the area is significant but there isn’t much coming out. 

If the economic activity created by the reshoring goes into some of the deficit markets, “it could have a tremendous impact,” Christos said. Trucks now emerging from those regions empty might instead be full, and “as an industry, we might need more capacity.”

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.