There have been some interesting articles in the trucking periodicals this week. The first appeared in Transport Topics on Monday, October 5, “September Class 8 Orders Clear 31,000 for Best Showing Since October 2018.” These orders are the leading indicator of the supply and demand of trucking capacity in the shipping community. As I have noted throughout the last year, the number of new trucks purchased from the end of 2018 through 2019 has been the main reason why we currently have a capacity dynamic in the favor of the carrier. This balance effects rates in the spot market as well as having a delayed effect on contract rates. However, the contract rate process has more strings attached than the pure market-driven rates we find in the spot market. Strategic carriers and shippers need to work on more aspects of their relationship than just strictly rates, and that process is ongoing right now.
But keep in mind, the proverbial “waiting for the other shoe to drop” or the impending reversal of supply and demand, will enter into the long-term contract negotiations. These cycles usually go from peak to trough over the course of 18-24 months. Overlaying that on the 12-month terms of negotiated contracts makes this a strategic dance for fair rates. Lastly, the timeliness of their inception makes the financial results to the carrier very murky.
There was another article this week that addressed an additional big aspect of this rate negotiation process that we will see in the very near future. That same day, CCJ reported, “Fleets preparing to face a driver shortage ‘like it’s 2018 all over again.’” The driver pool and utilization of hours is shrinking again, the same as we saw in 2018. In addition to the pandemic, the current challenges to the driver community have added to the constraints many carriers are fighting in this high-demand market.
The balancing act will fall on carriers to carefully review their growth strategy, including the known impact of added capacity in this very tumultuous industry. We must then consider the short-term impact of increased driver shortages, and the concern that these current challenges will become long-term constraints when filling these trucks we have been purchasing.