Capacity–Is It Really Coming Back?
Carriers are purchasing new trucks at record levels. According to the Wall Street Journal, heavy-duty truck orders hit a whopping 48,700—twice as many during the same time frame last year. Some industry people believe this might loosen the crunch of tight capacity.
But is capacity coming back to the market?
A recent article from Craig Fuller over at Freightwaves suggests that the uptick in big rig and trailer orders does not indicate capacity flooding the market. Fuller explains that prices on used trucks aren’t firming and that there haven’t been enough new labor hires in the trucking industry to offset the continuing driver shortage and the deficits created by the ELD Mandate.
So what’s happening?
Here at AM Transport, we’ve seen this before. Historically, when carriers are enjoying good margins, they hope to multiply those margins into larger financial successes by investing in more trucks to grow their fleets. Typically what happens is the load-to-truck ratio shifts, creating a more favorable climate for shippers. It’s a cycle. But times have changed, and due to many factors such as eCommerce, tighter regulations, and advanced technologies, we believe this cycle might be gone for good. And it’s definitely not what’s happening today.
We’ve been keeping track of the data, and while it could indicate a flattening of capacity we believe it paints a different picture. In fact, we think the data shows carriers will be spending money proactively in a dynamic and changing market.
Here’s the evidence:
- The surge in trailer purchases is a smart hedge against the difficulties in drive-time created by the ELD Mandate. A drop trailer pool is an excellent solution to HOS rules and the tracking of drive time. Arranging a drop trailer minimizes a driver’s nondriving time. We believe shippers will impose drop trailer requirements on vendors, and carriers who don’t position themselves with trailers will lose out.
- The driver shortage continues. Carriers may use excess cash to purchase new equipment but they’ll have a tough time filling seats due. Carriers must invest money in technology and other previously nonessential areas—amenities such as comfortable seats, rest quarters, and access to fitness equipment—in order to retain and help recruit new drivers.
- Carriers are top-grading equipment to remove inefficiencies. Those who use this as an opportunity to incorporate better technology into their fleets will win in the long run vs though who are just simply trading older for newer equipment. ELDs come in all shapes and sizes, but Carriers who understand their business hinges on these devices will not only invest in physical equipment but also in the necessary education.
The past year has been one of upheaval in the trucking industry with several natural disasters, a burgeoning driver shortage, and the implementation of the ELD Mandate and new regulations which goes into full effect on April 1. Carriers are responding to these changes in confident and interesting ways.
While many predict that Carrier investments point to an ease in the capacity crunch, we don’t see it. We believe capacity will continue to be tight for a while that’s why we keep our eyes on the trends and continue to analyze the data. Information and communication help our customers make smart and cost-efficient decisions for their freight.