Capacity has had the U.S. truckload market in a vice grip over the past two years. However despite its formidable grip, recent indicators suggest that capacity is loosening for the trucking industry. With many truck drivers returning from absence and an uptick in truck production last month, some industry insiders are optimistic that these improvements are here to stay.
Truckload Capacity Steadily Loosening
ACT Research, a firm that provides market data and industry analysis for commercial transportation, found that truck capacity has been gradually expanding as indicated in its For-Hire Trucking Index. This finding supports the outlook of Jack Atkins, a research analyst at the investment firm Stephens: “Capacity feels like it’s getting a bit better…the supply chain is stabilizing some, and that is going to add capacity.” Some stakeholders second Atkins’ forecast and are optimistic that supply chain tightness peaked during the second half of 2021 and that the worst of it is behind the industry.
Within its For-Hire Trucking Index, ACT Research highlights capacity rose 52.4 in February from January. For context, any reading above 50 indicates growth. The firm attributes this growth to returning truck drivers who were off the road in January due to concerns over Omicron, a COVID-19 variant. “With equipment production still challenged, the improvement in recent months is likely largely about drivers,” Carter Vieth, a research associate at ACT, reasoned in a statement reported by The Journal of Commerce.
Vieth also notes that truck manufacturers have produced enough trucks to slightly rise above replacement rates in Feburary. However, like Vieth said, equipment production remains challenged. This uptick in newly built trucks last month surpassing replacement rates is likely an aberration. Equipment shortages are still relevant for industry production, especially now that Ukraine, a global supplier of semiconductor chips (critical for vehicle production), adapts to its present circumstances.
Atkins anticipates trucking carriers will have a significant number of their orders canceled due to these shortages on the production end, the Journal of Commerce reports.
The Power of the Consumer
While the available number of truck drivers and trucks are key influencers for truckload capacity, the single biggest determiner is the consumer and how they wish to spend. The attitudes of consumers and their holstered purchasing power directly impact demand for freight. As The Journal of Commerce asserts, a significant drop in consumer demand would leave more capacity visible below the freight market’s high-tide line. A quick eye test would show capacity loosening for the truckload market. However, it comes with the broader context of retailers having significantly less to sell and ship.
Courtesy of The Journal of Commerce, Paul Bingham, director of transportation consulting for S&P Global Market Intelligence, says consumer sentiment has fallen to recent lows. “Retail sales aren’t matching what companies expected just eight weeks ago…the composition of consumer spending will be different,” Bingham continued. Bingham, along with other industry insiders, reinforce consumer demand and its impact on truckload capacity will become more evident in the next few months. If these forecasts stand corrected, a loosening of capacity for the truckload market may return supply and demand in the U.S. closer to an equilibrium.
A return to a rough equilibrium in the supply chain should not be interpreted as a return to pre-pandemic market prices. However, the once familiar sight of supply chain balance is certainly a step in the right direction.
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