Transportation Market Update Outlook – Where Are We Headed?

Current Capacity Outlook

Despite a difficult first three quarters of 2018, the market began to show signs of softening and improved capacity in Q4. This softening and improved truckload and intermodal capacity has continued into 2019, and the outlook for a steadier market has remained. This quick shift from the historically tight market of 2018 to a more shipper-friendly market at the start of 2019 has been a surprise to many within the industry. Let’s examine a few of these contributing factors:

1.     Carriers added drivers. According to industry reports, carriers were able to add approximately 2% new drivers last year, in part, due to more driver-friendly practices and an increase in driver pay. This improved the “seated truck” total at many carriers.

2.     Driver-friendly practices increased hours on the road. More driver-friendly practices increased, including flexible appointment scheduling and improved driver detention, allowed drivers to maximize their hours-of-service, which increased overall capacity in the freight network.

3.     Optimization initiatives reduced over-the-road truckload demand. Shippers leveraged optimization strategies such as converting truckload shipments to intermodal, using specialized equipment to increase weight/cube capacity, increase their use of dedicated fleet capacity and more, to reduce demand for over-the-road capacity.

4.     Primary Tender Acceptance has jumped by more than 10%. Today, many shipper’s acceptance percentage is in the upper 80%/lower 90% – this points to more signs of improved truckload capacity.

Spot Market: Current Rates and Trends

Spot rates in 2019 continue to move lower and are now consistently below contract rates in many lanes. Although spot rates are well above traditional levels of 2015-2017, these rates have dropped consistently from last year’s summer holiday peak and are now below what was seen in previous year. As a result, contract carriers are struggling to maintain or push rate increases as they are countered by aggressive pricing by brokers in both the spot and contract markets.  

The Impact of the Driver Shortage on Capacity

The driver shortage continues to climb and have an impact on trucking capacity. The shortage, which is estimated to be at a 50,000 to 60,000 deficit by the end of 2019, is primarily an issue in the over-the-road long haul area. Some of the reasons for the shortage include:

  1. Demographics and age. The median age of truck drivers is 49 compared to 42 for the rest of U.S. workers, so more and more of this aging workforce is retiring. Additionally, the current age requirement to drive a tractor-trailer across state lines is 21, causing the industry to miss out a large pool of drivers that could provide additional capacity.

  2. Demanding lifestyle. Truck driving is not just a career, but a lifestyle. Drivers are often on the road for extended periods of time and that’s simply not a desirable lifestyle for many.

  3. Competing jobs. The job market has improved and alternative employment opportunities are available for current drivers and would-be truck drivers. These jobs also allow workers to stay close to home versus on the road for two or three weeks.

  4. Regulations. New Department of Transportation regulations for driver hours-of-service have impacted driver productivity, requiring more drivers to make up for the decrease.

Unfortunately, new driver turnover remains high. While the industry succeeded in attracting new drivers to the industry in 2018, it remains a challenge to keep these new drivers in trucks in what remains a very tough job and life.

The industry has seen more stability and lower turnover in existing drivers and for many carriers existing driver churn or turnover has been lower than historical levels for most of the last year. This also has added capacity as carriers do not lose one or more weeks of drive time spent onboarding and training a driver that moves over from another carrier. This also has been another gain in overall freight capacity over the past year.

Where Are We Headed? The Future Outlook of the Market

Moving forward, it is expected that capacity will tighten at some points and markets during the next year, but nowhere near what we saw in 2017 and 2018. Even with the market becoming more stable, shippers should continue to focus on optimization initiatives, expand their modal mix, support their core carrier relationships and implement driver-friendly practices. This will have a positive impact when market conditions are good while preparing them for when capacity starts to tighten.

Ben Cubitt photo

Ben Cubitt is senior vice president, procurement and engineering at Transplace. With more than 20 years of industry and consulting experience in freight optimization, Cubitt has a deep familiarity with the freight procurement field working for consulting firms and multiple Fortune 500 companies in the consumer products, paper and automotive industries. He joined Transplace in July 2010 after four years as vice president, supply chain for RockTenn Corporation. At Transplace he leads the engineering and consulting teams.