As a transportation broker, I’m fighting on the front lines of supply and demand between freight and trucks every day. I have a unique perspective on the direction of freight capacity. It still baffles me why more economists aren’t looking at the trucking sector as a general indicator of where the economy is going. Before the major retailers even realize that sales are up or down, I know. I know because goods aren’t being pulled out of their warehouses to their shelves, which means shipments aren’t coming in from their suppliers, which means, their suppliers inventory is building, which means they are slowing production, which means they are cutting back ordering raw materials. One less skid sold on the shelves means at least 10 other shipments are not moving. The trucking industry feels the slightest upward or downward tick in the economy much more acutely than the rest of the sectors.
I’m seeing demand outstrip supply right now in almost every market. I’m also seeing a much bigger problem on the horizon.
The transportation industry still hasn’t felt the pinch of the credit crisis of 2008. While huge numbers of carriers have left the market due to insolvency, there are many more on the edge. They built up huge fleets when money was easy to get prior to 2008 and freight was plentiful. They’ve lasted this long all through the recession because banks have been loath to call their loans. The loans are all backed by the equipment that was purchased with the loans. A used truck isn’t worth much right now because no-one is buying, firstly, because they can’t get credit and secondly, because there is an over-supply. This dynamic is changing. 2010 truck engines are mandated to have some serious emission control technology, that has it’s drawbacks on fuel economy. Pre-2010 used trucks are starting to be in demand. Their price is rising. Should the banks call their loans to reduce their exposure to the trucking industry they will now have assets to sell and people who want to buy them. It’s just a matter of time. The tight capacity and the strengthening economy will be a one-two punch for shippers in the coming months. I can see pricing going through the roof. Be prepared. I suggest shippers shift their strategies right now. Most shippers are bidding and rate shopping to take advantage of the short term over capacity and below cost pricing that is out there right now. I’ve even heard the sales slogan for one major LTL carrier in the US is “90 for 90”. A 90% discount for 90 days, after that, no guarantees! It’s time to shift gears. Now’s the time for shippers to re-establish long term relationships with their transportation providers. Lock in capacity commitments and take a look at increasing their freight spend budget. I fear those who don’t will be left out in the cold in the months to come having to bid for trucks on the open market. Highest bidder gets the truck! Instead of all the carriers calling you, you’ll be calling carriers begging for equipment.
I’m sure this is not what shippers want to hear, but most know the current pricing levels are unsustainable and a healthy trucking industry is good for everyone. If you can’t get your goods to your customer or raw materials in from your supplier, your ability to grow and earn a profit will be seriously impacted. Talk to your transportation provider, you will need them in the year to come.