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Why trucking fleets are expanding amid a freight slowdown

New equipment galore! (Right on time for a trucking bloodbath?)

Truck driver Fletcher Mack on Friday, May 9, 2008. (AP Photo/John Froschauer)

Shain Ferriss started his trucking company in 2013 with one truck. Today, Ferriss’ fleet, called Greenmiles, has about 25 power units. As a freight recession looms, it’s not the best market for a small fleet like Greenmiles, which mostly hauls frozen or refrigerated meat.

Ferriss wants to get to 40 trucks by next year. There’s just one limitation: Everyone else wants more big rigs too.

This week, Ferriss learned that the 15 trucks he ordered in the spring wouldn’t be delivered this year. At best, he might get up to seven of those trucks next year. There just aren’t any production slots left. His only hope is that other fleets that ordered trucks will cancel their orders. 

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Unfortunately for Ferriss, cancellations are “absolutely miniscule,” said Eric Crawford, senior analyst at ACT Research. Fleets are desperate for trucks after manufacturing supply chain crunches made it nearly impossible to get a new truck through 2021 and much of 2022. 

That’s slowly changing. In the last three months, manufacturers delivered 81,000 trucks to fleets, up 30% from the same period last year, according to ACT. Major carriers like Old Dominion are planning to spend hundreds of millions this year on fresh equipment. And small fleet owners, like Ferriss, are eager to expand their business and drop cash on some new trucks. 

“We’ve had so much pent-up demand,” Crawford said. “The industry has been severely undersupplied.”

That might be surprising given spooky headlines of a freight recession, as well as a macroeconomic recession. Trucking insiders have warned on our very own FreightWaves that a bloodbath, trucking winter or Great Purge of small trucking fleets is coming upon us. It’s not just us! Outlets like Bloomberg, CNBC and The Wall Street Journal (here, here and here) have all warned readers that the trucking industry is flashing warning signs — even if a macrorecession is only anticipated to be short and shallow

Dry van spot rates in the U.S. hit $2.53 per mile on Monday, according to FreightWaves’ National Truckload Index, which measures the seven-day average of lanes across the country. That’s down 23.3% from the same day last year. Contract rates are also starting to weaken, though not at the same sharp declines.

Spot rates have declined throughout 2022, which is especially challenging for small fleets and owner-operators. (FreightWaves SONAR)

While pay for trucking services has declined on the spot market (and increasingly, the contract market), expenses have increased — especially around fuel, which reached $5.41 per gallon across the U.S. on Monday. This is an increase of nearly 50% from the previous year. 

“At this point, a lot of us question if it’s worth being away from home for sometimes weeks at a time, while dealing with the many headaches that come with truck driving, only to return with little to no profit,” said owner-operator James Evans, who is based in Valdosta, Georgia. Evans said his revenue is down 30% from last year. 

Tens of thousands of new trucks is the last thing the trucking industry needs in an environment like this. Additional capacity could force rates down further, particularly as they’re arriving just as consumer spending on durable goods is softening. This would make a freight recession that much more painful for fleets large and small. (What will we put in those new trucks if new homes aren’t getting built and you’re no longer buying air fryers?) 

There is a less chilling explanation. Experts said this new capacity is mostly going to large fleets — indicating a normalization of the industry, which had become unusually dominated by small fleets and the spot market since the pandemic began. 

There’s nothing like waiting 14.7 months for a truck

One of the curious conditions of 2021’s supply chain chaos was that, as durable-goods-crazed shoppers demanded more truck capacity, manufacturers could not produce that many trucks … because of supply chain issues

In October of last year, there was a 14.7-month wait for a new truck, per ACT. Large fleets usually order pricey new trucks, while small fleets deal with used ones. 

But for the past few years, it wasn’t large fleets that were the belles of the trucking ball. From May 2021 to May 2022, fleets of 1,000 or greater grew their tractor fleets by 1.2%, according to federal data. Meanwhile, the total number of tractors at fleets with six or fewer trucks increased by 7.7% over the same period. 

That’s because record-high spot rates and easy financing made it more appealing than ever to open up one’s own small fleet. From July 2020 to May 2022, just under 195,000 new carriers entered the market, according to FTR Transportation Intelligence data from June. About 70% of these new fleets comprised a singular truck. The previous record 23-month period welcomed far fewer new carriers: about 86,000. 

These newfound business owners descended upon the used truck market. Prices peaked in April 2022, according to ACT Research, hitting more than $140,000 for a 3-year-old used truck. That was more than double its April 2019 cost. 

Used truck prices have soared since the end of 2020. They are starting to soften but remain far above typical levels. (FreightWaves SONAR)

In response, many public truckers sold off their used trucks. Now, they’re looking to build back their fleets — especially as bankrupt owner-operators come back to them looking to become company drivers again. 

J.B. Hunt and Schneider both reported thousands of additional trucks in their third-quarter earnings, compared to the same period last year. Knight-Swift added around 15,000 new trailers in the last year, according to its third-quarter financial filings. And Old Dominion is planning to spend about $350 million on new trucks this year, per its most recent quarterly filing. 

Even as many add equipment, public truckers are also wary about ongoing macroeconomic and freight conditions — especially amid an unusually bad peak season.  

Crawford said, even with a mild to moderate recession on the horizon, ACT is still foreseeing a profitable year for the trucking industry. It will be less profitable than 2022, and that’s shown in the decline in pent-up equipment demand.

Nine months ago, ACT estimated more than 100,000 trucks in pent-up demand that wouldn’t necessarily be reflected in equipment deliveries. Now, that’s down to 55,000 or 60,000.

More capacity could be worrisome in freight recession

More capacity entering the market, whether it’s in small fleets or large, could be worrisome. Today’s fleets, especially small ones and owner-operators, are already struggling with depressed rates and rising costs.

“A lot of folks are just now getting their tractors and trailers,” said Daniel Kao, CEO and co-founder of load board TruckSmarter. “They purchased equipment ages ago, but because there was such a backlog, none of that arrived until recently.”

Federal data reflects that net revocations of trucking authorities are increasing this year, according to Avery Vise, FTR’s vice president of trucking. Hiring activity has remained chipper, as shown by preemployment queries into the federal Drug and Alcohol Clearinghouse analyzed by Vise

Some trucking fleets are still eagerly hiring drivers and buying new equipment. (FTR analysis of FMCSA data)

This provides credence to the belief that capacity isn’t necessarily exiting the trucking market. Rather, as ACT’s Crawford and Chris Visser, senior analyst at J.D. Power, pointed out, capacity is likely going to large fleets. 

And, even though owner-operators are shutting down, there are still some who are entering the market or expanding their business. Cory Williams, based in eastern Iowa, is one of them. He wanted to start a trucking company in late 2021, but that equipment showed up in spring of this year — just in time for the collapse in spot rates and uptick in diesel. 

“I am not going to say it hasn’t been difficult,” said Williams, whose company mostly hauls campers. “I’m learning a lot because I do it all on my own. It’s paying off in the end.”

Brent Hutto, who is chief relationship officer at Truckstop, told FreightWaves that the platform is still adding new customers, most of which are owner-operator fleets. However, the rate of customers leaving suddenly jumped in October after staying relatively low the entire year. 

Kao added, “We’re still seeing drivers enter the market or authorities being created and trailers going live, which just makes the problem worse from a rates perspective.”

Overall, the market is shifting in favor of large carriers and contract freight. During the unusual freight conditions of the pandemic, spot freight accounted for as much as 50% of the trucking market. That’s more typically hauled by owner-operators and small fleets. In the last few months, we’ve seen the spot market claim 18-30% of the spot market. It’s still considerably higher than the normal 10-20% share, but a reversion to the norm nevertheless.

Supply chain crunches may mute the impending freight recession

Those who have been around the trucking industry for a few years are well aware of its boom and bust cycles. For instance, in 2018, fleets invested in new hires and equipment with zeal amid red-hot rates. But 2019 saw a painful — dare I say — bloodbath as too much capacity entered the market. Scores of owner-operators and trucking companies shuttered or went bankrupt, including giants like Celadon and New England Motor Freight.

A painful correction is likely coming to the market, and small fleets are most at risk. 

But the lack of new and used equipment these past few years likely limited some would-be trucking entrepreneurs, perhaps encouraging those folks to stick to their company jobs or find work in another industry. 

“If you’re a carrier, you’re certainly frustrated because you’ve been running older, less fuel efficient fleets, so you haven’t been able to capture as much profit as you would have been able to,” ACT’s Crawford said. “The flip side is, OEMs aren’t going to have to lay off workers to the extent that they might have otherwise next year. Their production levels are going to be down, but still really elevated and comparable to 2022.”

This perhaps dampens just how much trucking capacity we have in the market, as well as the potential number of owner-operators who would struggle in a freight recession.

Despite these challenges, Ferriss of Greenmiles is confident that his fleet will survive the so-called Great Purge. He said he saved money during these past years of plenty and expects to draw down on those resources. 

“The people who came into this industry without real knowledge bought trucks at artificially high prices,” Ferriss said. “Those decisions put them first on the list to go out of business. I’ll probably end up buying that equipment for well under half of what they paid.”

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Rachel Premack

Rachel Premack is the editorial director at FreightWaves. She writes the newsletter MODES. Her reporting on the logistics industry has been featured in the New York Times, the Wall Street Journal, Bloomberg, Vox, and additional digital and print media. She's also spoken about her work on PBS Newshour, ABC News, NBC News, NPR, and other major outlets. If you’d like to get in touch with Rachel, please email her at [email protected] or [email protected].