It comes as no surprise that one of the greatest challenges currently facing the trucking industry is a capacity shortage. How long will it go on, will it loosen up as we continue through 2021, what factors are causing these restraints, and how will this affect rates are some of the questions many are asking.
Rates on the Rise:
There is no doubt that capacity has played an important role in the elevated spot rates shippers have been seeing. Analyzing December’s numbers, dry van and flatbed rates hit mutli-year highs. Dry van shipments averaged $2.64/mile last month, according to Truckstop.com, an 80 cent increase since May and “van’s strongest showing in two and a half years.” Flatbed rates increased 45 cents from May ($2.66), a record high since Sept. 2018 while reefer rates hiked 46 cents since April ($2.68). (1)
Influencing Factors:
-Drug & Alcohol Clearinghouse
The Federal Motor Carrier Safety Administrations’ Drug & Alcohol Clearinghouse serves to flag those driving while impaired and keep them off the road. This initiative came into existence in 2020 when it was determined that some commercial drivers used loopholes to stay in their cabs after a violation. As of the first of the year, thousands of owner-operators and fleet owners had not registered with the digital database and those who failed to do so by January 6, 2021 faced noncompliance issues with penalties in place providing civil and criminal charges, with up to $2,500 in fines per offense.
The regulation requires all commercial trucking fleets and owner-operators to run limited queries with the Clearinghouse for all drivers with a CDL license. The capabilities of the database allow enforcement officers to verify compliance instantly during any roadside stops.
The Clearinghouse has already removed over 40,000 commercial drivers from the road in 2020 and Scopelitis Transportation Consulting’s Dave Osiecki projects tens of thousands of drivers to be affected each year, a great impact on driver capacity given only around 11% are following through with the return-to-duty process.
-COVID
The world-wide pandemic has also led to an even greater driver shortage as many new drivers were reluctant to enter the industry once the pandemic began, others taking leave after having contracted the virus, and many calling off, not wanting to take the health risk. In fact, the Commercial Training Association projected that 2020 had nearly 40% fewer CDLs issued than if there wasn’t a pandemic.
While carriers can, and have, increased driver pay, FTR’s Avery Vise stated that even that wouldn’t restore the driver force to where it would have been if the pandemic didn’t break out and likely wouldn’t stabilize until COVID was “under control.” (2)
Overall, Osiecki doesn’t predict the capacity strain ultimately getting better this year.
Truck Orders
Carriers continue to face the dilemma of whether or not to purchase trucks. If an investment is made to grow fleet size and the demand is not there to meet it, carriers are likely forced into lowering their rates just to keep them running. On the other hand, not expanding one’s fleet can result in missed growth opportunities, not having a sufficient number of equipment to keep up with demand.
While truck orders took a still approach back in April/May when COVID rapidly started sweeping the US, shutting down businesses and putting restrictions in place, November and December saw a large spike in truck orders, with December bringing in orders of over 50,900 units, the fourth highest in history.
While an increase in truck orders appears to be positive, it’s important to keep in mind that some of that equipment will be replacing older trucks and those that do go towards growing a fleet doesn’t mean that there will be enough drivers to fill them as driver recruitment remains a challenge.
While much uncertainty remains for 2021, the trucking industry continues to have an optimistic outlook for the year ahead.
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https://www.freightwaves.com/news/when-will-the-next-wave-of-trucking-capacity-hit-the-market
https://www.freightwaves.com/news/december-class-8-orders-rank-fourth-highest-in-histor
