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Trucking utilization improves while prices remain suppressed

Photo: Jim Allen - FreightWaves

Chart of the Week: Logistics Managers Index — Transportation Utilization, Transportation Pricing (SONARLMI.TPUT, LMI.TPPR)

Like a heartbeat on an echo-cardiogram after a flat-line, trucking has found a pulse. After months of under-performance compared to 2018, volumes finally showed growth from a year-over-year perspective in August. Unfortunately for carriers, these volumes did not translate to a significant increase in transportation prices, which would be well timed leading into the upcoming bid season that typically occurs in the last few months of the year into January when many shippers place their transportation bids for the upcoming year. But there is positive news, as the Logistics Manager’s Index (LMI) for transportation utilization increased for the second consecutive month in August.

The LMI is a collection of indices that are produced in a collaborative effort by Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno in conjunction with the Council of Supply Chain Management Professionals (CSCMP).

Like the Purchasing Manager’s Index created by the Institute of Supply Chain Management (ISM), the LMI indices are based on a value of 50.0 being equilibrium with a reading above 50 indicating expansion and below being indicative of contraction. In August, the utilization number went from 53.2 to 55.1 while the pricing index value fell marginally from 49.2 to 48.9, indicating better utilization with continued softness in transportation prices. So how can utilization improve, while prices remain subdued?

Freight volumes are up YoY, while capacity has expanded, leading to lower rejection rates. Chart: SONAR – OTVI.USA, OTRI.USA

Earlier in the week, we reported on how there was no driver shortage as all signs point to an oversupplied market on the capacity side. Looking at the numbers, this becomes very apparent as volumes averaged over 3% higher this August versus 2018, while base spot rates were down 18% on average compared to last year from $1.71 to $1.40 per mile. There were higher volumes on lower rates. Tender rejection rates averaged 17% last August versus 4% this year, indicating carriers were much more willing to honor their contracted rates this year.

As with an undersupplied freight market, as we saw in 2018, an oversupplied market takes time to correct. Utilization always leads rate changes, regardless of direction. As truck utilization improves, capacity tightens and vice versa.

Utilization is the lifeblood of any carrier operation. Trucks that do not generate revenue lose money. Once a carrier commits to the purchase of a truck, it can be several years before the cost of that truck is recovered.

Trucks are a depreciable asset. This means carriers can spread the cost of the truck over several years if it chooses. Many large capital expenditures are treated in this manner, so the costs do not make any single month look worse than they were. This also allows time for the truck to generate revenue to offset the cost of purchase. If the truck sits idle, the cost remains on the income statement while revenues do not grow reducing profit margins and operating ratios. Increasing utilization does not mean increasing rates every time, but it is a step in the direction of higher rates.

It is apparent the supply of trucks is being reduced as trucking failures continue to be at multi-year highs and growing. If volumes persist, there could be a slowing of supply side contraction in the fourth quarter.


  1. Mike

    When the economy is strong, trucking sucks. Everyone and his brother jumps in… I’ll buy a couple of trucks and get rich. Hear that one too many times, from folks that have no business near a commercial vehicle.

    1. Stephen Webster

      Too many trucks chasing freight need pay truck drivers a living wage equivalent of the average wage per hour in Canada and the U.S. plus overtime after 10 hours per day and 50 hours per week plus room for one day in 34 hours reset if on the road. In Canada good companies paying $25 to $33.00 cd per hour plus medical and 5 percent matching r s s p s plus statuary pay plus 12 days vacation plus medical. They truck drivers lined up to work for them. Other companies paying $20. 00 on payroll or $23.90 to corporate account no benefits are complaining about truck drivers shortage. Some are paying 54 to 61 cents cd per mile or 41 to 46 cents U S per mile and 2 to 3 hours free dock time and bring in cheap overseas truck drivers. These companies are under cutting the rates causing good truck drivers to get other jobs as firefighters and construction work.

      1. Noble1

        The major problem in the trucking industry is the lack of structure . It’s equivalent to the “wild west” .

        Rates are all over the place along with driver wages .

        The construction trade is structured along with construction labour wages which are based on “skilled” labour performed and accumulated experience . This is a great example to follow and what the trucking industry needs to accomplish .

        Example : A truck driver apprentice hauling a dry box 53 foot trailer with a maximum of 50k lbs without hazardous materials with 2 years or less of experience should earn the equivalence of $26.50 per hour or .50 cents per mile based on all HOS up to 40 hours . Then time and half starting from the 41st HOS and depending on the route they must use to haul and season .

        After 2 years of accumulated experience the driver is no longer considered an apprentice . And the hourly wage is bumped up to $30 per hour or .57 per mile for all HOS up to 40 HOS .

        You structure wage according to experience accumulated , vehicle weight, length , route, season ,weather, and specialty .

        A driver hauling fuel and or extreme hazardous materials would be paid based on experience , risk , weight, length ,route , season, weather , and due to specialized transport . $60 per hour or $1.13 per mile on payroll would be the minimum wage for hauling extreme hazardous materials such as fuel . Explosives and ammunition would be in the same risk category as fuel and hazardous chemicals etc.

        However , the vehicles used to transport such hazardous goods should be upgraded to a point where perforation is impossible ie: , it must not leak ,nor explode , and especially not crush the driver . The material hauled should remain contained within its compartment under extremes(collisions) . Same for tires . They should not be capable of exploding, leaking, and or rupturing .

        As far as I’m concerned , hazardous materials shouldn’t be transported on public roads except for the short distance from “commercial” highways to the drop and loading point with a very well educated public obliged to give trucks the right of way . The risks involved with transporting hazardous goods on over crowded public highways are to high .

        Anticipating future transportation changes such as autonomous vehicles(technology revolution /computers) and an increase in population , the trucking industry should have lobbied to have their own transportation roads built 30 or 40 years ago . This would have solved a huge safety issue and would have been an opportune area on which to test and play with their futuristic autonomous road transportation ideas .

        The tremendous challenges that the trucking transportation industry is facing today has been caused by major carrier and government negligence ,poor judgement, along with poor management choices .

        Then the question is how can carriers offer better wages and remain competitive . Business is all about money . Increasing profits and decreasing costs .Goods transportation is not about caring about people . It’s about generating a profit !

        Drivers are not viewed as assets in general , they are viewed as expendable liabilities . And that’s a major flaw in carrier mentalities and in all business . A labourer is a major variable cost in their view .

        Their goal is to keep that variable cost as low as possible and eventually replace it with a low fixed cost .

        The lack of training , lack of safety, glut of drivers , lack of ethics , low wages , poorly designed commercial transport vehicles etc etc etc is all due to incompetent carrier management .

        I don’t blame the uneducated . I blame the educated ! And the educated don’t always act wisely !

        If you observe the trucking transportation industry you will realize most if not all are doing the same thing . They treat their assets as expendable liabilities . Rather than respecting and listening to the hands that feed them , they treat drivers as cheap expendable labour .

        Carrier “competitive” solutions began with :

        It began with pay per mile to remain competitive
        log book cheating to remain competitive
        Speed limiters to remain competitive
        ELD’s to remain competitive
        Lack of proper training to remain competitive
        Driver inc. to remain competitive
        Then Driver training improvement to remain competitive
        Increase truck driver candidates through immigration programs to remain competitive
        Lower commercial driver candidate entry age to remain competitive
        Increase women attraction to the trade to remain competitive


        All in the name of wanting to control the industry to remain competitive . And where did that lead to ? It lead us to the broken trucking industry that is currently upon us .

        These people don’t appear to know how to be competitive .

        We are currently on a regulation high due to all the screw ups caused by carriers . They have created regulations that are removing truck driver interest . So now they are creating another problem by responding to prior problems they originally created . This is absolute insanity .

        Each time they create a problem they offer a solution to that problem by creating another problem . The industry keeps ranting about a driver shortage . They are creating a lack of interest but currently there is absolutely no driver shortage .

        In fact due to their driver lack of interest creation they are now suggesting that the “solution” will be autonomous trucks . And that will become an even bigger problem .

        My suggestion is to replace the original problem all together . Replace the carriers . If truck drivers unite they will become the ultimate carrier . Drivers are the one’s on the road . Drivers are the one’s that see it all . Drivers are the assets behind the wheel . Drivers are the backbone in the road transport industry .

        Truck Drivers are not the problem per se . The problem comes from those attempting to control truck drivers rather than really educating them . Those people screwed up tremendously and still are .

        So ultimately you have a choice . Either it will be the carriers that will eventually replace drivers or drivers will replace the carriers . And that’s if shippers don’t get fed up and end up realizing that they can eventually replace both in their quest to “remain competitive” .

        At this point the trucking industry is diminishing truck driver freedom . And when you diminish freedom you also diminish pleasure and interest .

        The industry tricks drivers through propaganda . It misleads and enslaves . And this must stop .

        Competition doesn’t always lead to a consumer benefit . Competition as we have seen it in the trucking industry per se has lead to corruption , mismanagement, more regulations , and lower wages .

        In conclusion , it appears capitalism per se in the trucking industry has ran its course . The “Bourgeoisie” in the trucking industry have genuinely managed to shoot themselves in the foot .
        The general public simply hasn’t realized it yet ,but they will .

        In my humble opinion ………………….

  2. Noble1

    “Increasing utilization does not mean increasing rates every time, but it is a step in the direction of higher rates.”

    Increasing utilization eventually leads to a decrease in capacity . A decrease in capacity eventually leads to higher rates . Higher rates eventually leads to an increase in capacity by attracting new and or more participants . More participants eventually leads to over capacity . Over capacity eventually leads to lower rates .

    Repeat to ad nauseam .

    In my humble opinion …………..

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Zach Strickland, FW Market Expert & Market Analyst

Zach Strickland, the “Sultan of SONAR,” curates the weekly market update. Zach is also one of FreightWaves’ Market Experts. With a degree in Finance, Strickland spent the early part of his career in banking before transitioning to transportation in various roles and segments, such as truckload and LTL. He has over 13 years of transportation experience, specializing in data, pricing, and analytics.