Transport Topics | Opinion: The 2017 Capacity Crisis: Past Lessons, Current Advice

10.31.17 | Jeff Tucker, Transport Topics

Trucks are harder to find and more expensive than ever.

In late September, FTR and reported load availability was up 110% over 2016. By mid-October, DAT reported the van load-to-truck ratio hit 7.0 loads per truck - the “highest ever recorded” in DAT Trendlines - a study that began in 2010.

Some of the largest truckload providers are preparing their contract customers for double-digit 2018 price increases.

We saw a glimpse of things to come in 2014, and again in June 2017 when rates peaked, but no one could have been prepared for the market change in September.

Shippers that depend on fall sales are luring temperature-control capacity from other shippers by paying contract rates, plus $1,000 or more, depending on the lane. In this market, one moment you have a truck, and the next, it’s gone.

Options are limited: Freight expeditors, far more expensive than market prices, are often booked days in advance. Truckload carriers, large and small, dry and temp-control, are equally scarce. Sophisticated carriers are prioritizing which customers to serve, and which to abandon, based on their potential return on investment.

Shippers are angry and frustrated. At the many shipper groups I’ve addressed this fall, including the Council of Supply Chain Management Professionals, I’m asked the same questions, such as, “How much should I add to my 2018 freight budget?” I don’t know. Shippers also ask, “Is this 2014 all over again?” meaning, is this storm-related noise that will pass? I don’t know, but I doubt it.

For those of us with tenure in this crazy business, market conditions are reminiscent of the crisis that began in the third quarter of 2003, and didn’t let up until 2005. At the time, the United States had recently emerged from recession, and trucking was lackluster, with volumes up one quarter and down the next.

But then-President George W. Bush and Congress passed a stimulus package in that 2003 third quarter, which gave rise to an impressive 8.2% annualized GDP pace that quarter. That remarkable increase in spending, coinciding with peak third-quarter shipping, overwhelmed trucking. Shippers went from operating on autopilot to vigorously competing with each other for trucks, bidding up the price of trucking.

With capacity at crisis levels, FMCSA’s hours-of-service mandate took effect in January 2004, reducing drivers’ productivity by another 3% to 4% at the worst possible moment. Sound familiar? Truckload providers disappeared for some shippers, and freight flooded LTL carriers and intermodal. Train speeds slowed, forcing some intermodal back to truck. Capacity was impacted for about 16 months before the market normalized.

Today’s market situation feels similar, but I believe it’s a bit worse. Here’s why.

Trucking is much tighter than it was in 2003, when we were emerging from a recession. Today’s economic expansion is the third-longest in U.S. history. Add to that FTR Intel’s recent estimate that trucking is at 95% of capacity. That’s tight. The 2017 hurricanes and fires are impacting the market as much as, or worse, than the Bush 2003 tax credit. Plus, we’re in peak fourth-quarter shipping. And, don’t forget the FMCSA’s ELD mandate is about six weeks away!

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