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Tight capacity will drive year-end snapback in trucking markets: TIA economist

Image: Jim Allen/FreightWaves

The “snapback” in freight markets is going to be hard and fast, driven by tighter capacity as drivers leave the current falling market, according to the chief economist of the leading third-party logistics providers’ (3PLs) trade association.

Longtime industry economist Noel Perry, now chief economist of the Transportation Intermediaries Association (TIA), told a TIA-sponsored webinar this week that he sees a recovery in which volumes fall off sharply this quarter and into the third quarter, climb back slowly, but face a capacity crunch because of the number of trucks put “on the fence” by owners beaten down by low rates and volumes now.

“This baby got bad all of a sudden and it didn’t get back because markets were inherently weak,” Perry said. “This one stopped all of a sudden. So there is likely to be some sort of a whipsaw event as people suddenly go back to business.”

The reduced volume levels that Perry sees are from what he estimates will be a 20% decline this year, with year-on-year comparisons not rising above the prior year until the second quarter of 2021. He noted that after the decline in 2009 during the Great Recession, freight volumes didn’t get back to their pre-recession point until 2015. Things won’t take quite that long this time, he said, but Perry said he didn’t expect to see volumes of the fourth quarter of 2019 return until “sometime in 2023 or 2024.”

Although a full return to 2019 levels isn’t slated for a few years in Perry’s model, he did say growth should be “relatively steady and low” and will return the market to a “stable” state at the end of the year.

But markets are going to hit what Perry said would be a “big surprise … an anomaly.” Even with a slowly rising freight market, Perry said he sees capacity utilization in excess of 100% by the end of the year, only climbing down below it in the first quarter of next year, but still remaining elevated.

Source: Transport Futures

With the sudden decline of the first half of 2020, “because the bad things all happen at once, we have the need to shed capacity five times greater than we did in 2009,” Perry said. That would take 400,000 trucks off the road this quarter and 200,000 the next, he added.

And although he doesn’t see the volumes of the fourth quarter of 2019 returning for a few years, they will increase enough that he described a marketplace that “jumps up” later this year. “It usually takes us a quarter or two until we realize the need to change something, and by the time we start adding drivers, the marketplace is already tight,” he said.

“Trucks are parked and won’t be manned, so pricing should be relatively attractive once we get into late this year and next year,” Perry added.

It’s possible that fleets will be better able to manage their capacity than they have in the past,” Perry said. It’s possible that drivers won’t be laid off at the rate they have in the past (and Perry did not mention the possible impact of the Paycheck Protection Plan, designed to keep people employed though not through the fourth quarter). Or possibly companies will bring back drivers faster than in the past, he added. “If so, then we don’t get back to capacity levels as bad as they were in 2018,” he added.

The impact from these developments, without putting a number on it, is that prices will “drop badly in 2020,” according to Perry. But he said he expected prices to move up “strongly” late this year and into next year “because they are making up the capacity pressures of two downward years.”

The dynamics of this fast-changing market mean that the normal assumption — a weak market makes spot transactions more attractive — won’t necessarily hold this time around, Perry said. First, according to Perry, spot rates have fallen so much that they’re already down about where you’d expect them to be at the bottom of the cycle.

But secondly, Perry said, carriers with contracts “will be dying for business and they will accept every tender they get.” Some of the best opportunities in the spot market are when “the contract guys stop accepting every tender and dump business on the spot market.” That’s not the scenario Perry sees for much of this year.

Historically, the spot market share goes down in a downturn because “people are looking for the easiest way to move freight, and if a contract covers it, it’s what they do,” he added.

Perry cited similar instances to those in 2004 and 2017. “I think it’s possible now that prices will go through the roof and truckers will be unparking their trucks and giving out bonuses to get those people back they laid off,” Perry said.

But looking into the future is particularly difficult this time around, he added, because “we just haven’t had a shock of this magnitude before.”

“I can tell you the industry will be surprised by the snapback,” he said. “There will be a time when there will be scrambling for trucks.”


  1. Bill

    Carriers need to do all they can to be standing on the other side of this. The upside to those that are is that they will be able to participate in a tremendous opportunity to generate wealth.
    Hopefully, they learned from carriers that had their best years in 2019. These carriers didn’t expand in 2018 but paid down debt, saved, and focused on safety.

  2. Dave F

    It’s a market – supply/demand but I don’t think I saw a single carrier ever say “These rates are nuts – I’m holding the line on them, it’s not fair to the shipper.” in 2018.

    Why is it greedy for the shipper to want cheaper rates (to increase their margin) but NOT greedy for a carrier to want higher rates (to increase their margin)?

    Each business makes an economic decision for what they have going on. Free market determines the rate. If it’s too low – it doesn’t move. If it’s too high it’s not offered.

      1. Dave F

        Why? As a carrier I speak the truth. Sorry it bothers you. Each carrier/shipper has a responsibility to look out for its own financial well being. Saying it’s ok for me to do X but not ok for them? That’s garbage.

        Overall – you do better when you understand both factors at play and right now, too many carriers are complaining because the shipper they raised rates on 2 years ago is asking for that back.
        I can’t load my truck without shippers, shippers can’t move freight without me – have a discussion and figure it out but vilifying the “other side” helps no one.

  3. Jason Miller

    My professional opinion is that a “snapback” is too optimistic given the dire economic situation the country is currently in. Demand for automobiles is projected to fall by ~25% this year. Residential construction is going to decline given the high rate of unemployment, which will persist for many months to come, is going to curtail home buying. The oil drillers are going to be buttoning-up wells given the low price of WTI crude, which will kill demand for energy equipment and heavy construction equipment. Aircraft production isn’t going to be what it was a few years ago given Boeing’s 737 MAX woes, coupled with the virtual elimination of passenger air travel. Farmers are still getting crushed, so there won’t be much demand for farm equipment. WSJ just reported the other day that there are very high levels of steel inventory, so steel production will scale back. Consumers aren’t going to be shopping like they used to, so less demand for freight for your Macy’s and Best Buys of the world. So where will this freight come from? As proof, check out the Cass Shipment Index; it didn’t hit bottom till just as the Great Recession ended and stayed low for about a year after the NBER officially said the Great Recession ended.

  4. Legenia Kilgo

    I wouldn’t say that shippers are always paying! I am a small carrier owner and the carriers are always paying too. The freight that I have been hauling for years just got cheap. The shippers are finding cheaper trucks to haul the freight that us dedicated carriers have been hauling. That is not right. The shippers will be the ones to get the loans from the government and the shippers are the only one making any money. Truck owners rates go down, truck payments stay the same, and the trucks are sitting more because the shippers got new trucks to haul for less money.

  5. Joe

    Good luck with that prediction! Snap back! Nope! Its going to be a very long process. I am a shipper and I am enjoying this. We are always the ones paying!! What comes around goes around.

    1. A Driver

      See ya around shipper (who takes joy today) )))
      What goes around will come around as you say, SIR!
      This is temporary, we’ll survive and then you’ll be the one paying higher rates. I love this game!

    2. cletus s renninger

      you will have you’re freight rot on you’re dock waiting for me to haul you’re cheap freight!! i hope you go out of bussiness ,you jerk!!!!1

    3. Cathy Stuber

      Hey Joe,
      Hell of a way to say thanks to these guys out delivering essentials. It sounds like you enjoy bathing in the stench of your own greed and starving the truckers. These are the men and women that sacrifice home life, miss their kids growing up and live on the road that you are sending a big F— you to. But hey, Mr Joe Shipper…like you said, what goes around comes around asshole.

      Also, to any truckers reading this… thank you for all you do for our country during this time and always!

  6. PG

    Thank you for your comment. I had never thought of the articles and their headlines in that matter. As they used to say in the old days, “it’s all about selling papers”!

  7. CM Evans

    Add in that these predictions likely do not factor political effects. The wrong elected officials can extend/delay any market corrections. We’ve seen this happen not so long ago. I’d prefer the authors refrain from titling their articles with either positive/negative headlines. This only offers a glimmer of hope to some and drives fear into others, neither of which is an effective strategy. Just provide the data, detail how you arrived there, and allow others to make decisions based on how the data relates to them.
    I’m of the opinion a majority of these articles are less to inform and more to drive traffic to advertisers, click bait if you will.

  8. Dave

    Noel…learn this business please so at least it appears you know what you are talking about. You obviously don’t.

    It’s not that the “contract guys stop accepting every tender and dump business on the spot market” as you say. What ACTUALLY happens is when the spot rate falls enough the shippers and brokers STOP TENDERING LOADS TO THE CONTRACT CARRIERS AND CHASE THE LOWER RATES IN THE SPOT MARKET TO SAVE MONEY. Why pay your contract carriers a rate of $2.25 per mile when you can go to the spot market and pay $1.25 per mile????

    Contacts mean NOTHING to a shipper or broker when dealing with a carrier if spot rates fall due to low volumes.

    Also, you say rates will “snap back”. Again, not true if all those parked trucks come back onto the market as the volumes (and rates) rise. This always happens after a recession. This keeps a lid on rates going up and is usually a 1 to 3 year process to see rates meaningfully increase.

    We LIVE this life and see it unfold in our daily lives.

    1. Bobby

      LOL, not saying Noel is right or wrong. But I find it interesting that someone that thinks they are smarter than someone else around this doesn’t even know who Noel Perry is. If you are a business person in this industry knowledge of people that follow the market at this level is critical.

      And for the record, contracts mean nothing to the shipper, broker, or CARRIER.

Comments are closed.

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.