Truckers expand amid freight recession

Shain Ferriss started his trucking business in 2013 with one truck. Today, the Ferriss fleet, named Greenmiles, includes about 25 engines. With a freight recession looming, this isn’t the best market for a small fleet like Greenmiles, which primarily hauls frozen or chilled meat.

Ferriss wants to have 40 trucks by next year. There’s just one caveat: everyone else wants more big rigs, too.

Ferriss learned this week that the 15 trucks he ordered in the spring would not be delivered this year. In the best-case scenario, he could get up to seven of those trucks next year. There are simply no more production slots available. His only hope is that other fleets that have ordered trucks cancel their orders.

Subscribe to our nation’s best weekly freight newsletter, MODES!

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

That is slowly changing. According to ACT, manufacturers delivered 81,000 trucks to fleets in the last three months, 30% more than in the same period last year. Major airlines like Old Dominion plan to spend hundreds of millions on fresh gear this year. And small fleet owners like Ferriss are looking to expand their business and spend money on some new trucks.

“We had so much catching up to do,” Crawford said. “The industry is severely undersupplied.”

This might come as a surprise given the ghostly headlines of a freight recession as well as a macroeconomic recession. Trucking insiders have warned on our own FreightWaves that a bloodbath, a trucking winter, or a major purge of small truck fleets is upon us. It’s not just us! Outlets like Bloomberg, CNBC and The Wall Street Journal (here, here and here) have all warned their readers that the trucking industry is showing red flags – even if a macro recession is expected to be brief and superficial.

According to FreightWaves’ National Truckload Index, which measures the seven-day average of lanes across the country, US spot prices for dry trucks hit $2.53 per mile on Monday. This is 23.3% less than on the same day last year. Contract rates are also beginning to moderate, although not with the same sharp declines.

Spot rates have fallen throughout 2022, which is particularly challenging for small fleets and owners. (FreightWaves SONAR)

While pay for trucking services has fallen in the spot market (and increasingly in the contract market), spending has risen — particularly related to fuel, which hit $5.41 a gallon in the US on Monday. This is an increase of almost 50% compared to the previous year.

“At this point, many of us are wondering if it’s worth being away from home, sometimes for weeks, while dealing with the many headaches that truck driving brings, only for little to no gain to return,” said owner-operator James Evans, who lives in Valdosta, Georgia. Evans said its sales were down 30% year over year.

Tens of thousands of new trucks are the last thing the truck industry needs in an environment like this. Additional capacity could push rates further lower, especially as they arrive just as consumer spending on durable goods slows. This would make a freight recession all the more painful for fleets large and small. (What are we going to pack in those new trucks when new homes stop being built and you stop buying air fryers?)

There is a less startling explanation. Experts say this new capacity will mostly go to large fleets – indicating a normalization of the industry, which has been unusually dominated by small fleets and the spot market since the pandemic began.

There is nothing better than waiting 14.7 months for a truck

One of the strange conditions of the supply chain chaos in 2021 was that when durable goods-mad buyers clamored for more truck capacity, manufacturers couldn’t produce as many trucks due to supply chain issues.

As of October last year, there was a 14.7-month wait for a new truck, according to ACT. Large fleets typically order expensive new trucks, while small fleets deal in used ones.

But in recent years, it hasn’t been big fleets that have been the beauties of the trucking ball. From May 2021 to May 2022, fleets of 1,000 or more tractors grew 1.2%, according to federal data. At the same time, the total number of tractors in fleets of six trucks or fewer increased by 7.7% over the same period.

Because record-high spot prices and easy financing made it more attractive than ever to open your own small fleet. From July 2020 to May 2022, almost 195,000 new carriers entered the market, according to data from FTR Transportation Intelligence in June. About 70% of these new fleets consisted of a single truck. The previous record 23-month period welcomed far fewer new airlines: about 86,000.

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

Used truck prices have skyrocketed since the end of 2020. They are beginning to subside but remain well above typical levels. (FreightWaves SONAR)

In response, many public truckers sold their used trucks. Now they’re trying to rebuild their fleets – especially as bankrupt owners and operators return to them to become company drivers again.

JB Hunt and Schneider reported thousands of additional trucks in the third quarter compared to the same period last year. Knight-Swift added about 15,000 new trailers last year, according to third-quarter financial records. And Old Dominion plans to spend about $350 million on new trucks this year, according to its most recent quarterly filing.

While many are adding equipment, public truckers are also concerned about ongoing macroeconomic and cargo conditions — especially in an unusually poor peak season.

Crawford said even with a mild to moderate recession on the horizon, ACT still predicts a profitable year for the trucking industry. It will be less profitable than it was in 2022, and that shows in the drop in pent-up demand for equipment.

Nine months ago, ACT estimated a backlog of more than 100,000 trucks that would not necessarily be reflected in equipment shipments. Now it’s only 55,000 or 60,000.

More capacity could be a concern in a freight recession

More capacity coming to market, whether in small or large fleets, could be a concern. Today’s fleets, especially small and owner-operators, are already struggling with low rates and rising costs.

“A lot of people are buying their tractors and trailers right now,” said Daniel Kao, CEO and co-founder of Loadboard TruckSmarter. “They bought the equipment ages ago but because there was such a backlog none of it arrived until recently.”

According to Avery Vise, FTR’s vice president of trucking, the federal data reflects a growing number of trucking authority retractions this year. Hiring activity continues to be more brisk, as indicated by pre-employment inquiries to the State Drug and Alcohol Clearing House analyzed by Vise.

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

This confirms the belief that capacity is not necessarily disappearing from the truck market. As ACT’s Crawford and JD Power’s senior analyst Chris Visser pointed out, the capacity is more likely to go to large fleets.

And even though owners and operators are closing, there are still some entering the market or expanding their businesses. Cory Williams from eastern Iowa is one of them. He was aiming to start a trucking business in late 2021, but that gear surfaced this spring — just in time for the collapse in spot prices and the surge in diesel.

“I’m not going to say it wasn’t difficult,” said Williams, whose company primarily hauls RVs. “I learn a lot because I do everything by myself. That pays off in the end.”

Brent Hutto, chief relationship officer at Truckstop, told FreightWaves that the platform is still adding new customers, most of whom are owner fleets. However, the churn rate suddenly spiked in October after remaining relatively low throughout the year.

Kao added, “We’re still seeing drivers come into the market or authorities created and trailers put into service, which only makes the problem worse from a pricing 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 up to 50% of the truck market. This is more likely to be drawn by owners and small fleets. In the last few months we have seen the spot market claiming 18-30% of the spot market. That’s still well above the normal 10-20% level, but still a return to the norm.

Supply chain bottlenecks could dampen the upcoming freight recession

Those who have been in the trucking industry for a number of years are well aware of its boom and bust cycles. In 2018, for example, fleets were eagerly investing in new hires and equipment, and at blisteringly hot prices. But 2019 was a painful – dare I say it – bloodbath when too much capacity hit the market. Scores of owners, operators, and trucking companies have closed or gone bankrupt, including giants like Celadon and New England Motor Freight.

A painful correction is likely coming and small fleets are most at risk.

But the shortage of new and used equipment in recent years has likely restricted some would-be trucking contractors and perhaps encouraged those folks to hold on to their company jobs or find work in another industry.

“If you’re a trucker, you’re certainly frustrated because you’re running older, less fuel-efficient fleets and therefore haven’t been able to make as much profit as you could have made,” ACT’s Crawford said. “The downside is that next year OEMs won’t have to lay off at the rate they otherwise would have had to. Their production level will decrease but will still be very high and comparable to 2022.”

This perhaps dampens how much truck capacity we have on the market, as well as the potential number of owners who might be struggling in a freight recession.

Despite these challenges, Greenmiles’ Ferriss is confident his fleet will survive the so-called Great Purge. He said he’s saved money in recent years of plenty and expects to have those resources to draw on.

“The people who came into this industry with no real knowledge were buying trucks at artificially high prices,” Ferriss said. “These decisions put her first on the list to go out of business. I’ll probably end up buying this gear for a lot less than half what they paid for.”

Email your thoughts to [email protected]. do not forget it Subscribe to MODES for your weekly dose of transportation insights.

Leave a Comment