Transportation Market Update: Capacity Outlook
June 10, 2019 Transplace

Transportation Market Update: Capacity Outlook

Capacity Trends and Tips for International Roadcheck and Beyond

2018 was a historic year for the transportation industry. The truckload (TL) market was extremely tight due to limited capacity—and as a result, many shippers looked to alternative modes of transportation to move their freight and went to extra lengths to increase efficiency and reduce costs.

However, in 2019, the market has shifted to become much more shipper-friendly, surprising many industry professionals. And while conditions have certainly improved over last year, last week’s International Roadcheck was one of a number of reasons that shippers should still be keeping an eye on the current capacity market and plan for what might be ahead.

International Roadcheck 2019: How It Impacts Short-Term Capacity

The Commercial Vehicle Safety Alliance’s (CVSA) International Roadcheck (held June 4-6 this year) has a tendency to pull capacity out of over-the-road networks. Each year, International Roadcheck places particular emphasis on one category of violations, with this year’s focus on steering and suspension systems.

According to the CVSA, during the week inspectors conducted “the North American Standard Level I Inspection, a 37-step procedure that includes an examination of driver operating requirements and vehicle mechanical fitness.”[1]

Last week, these ongoing inspections caused a tightening in the capacity market. According to Fleet Owner, Roadcheck often causes some capacity challenges because, “If a truck is deemed unfit, law enforcement conducting the inspections won’t hesitate to take a truck out of service. During last year’s event, nearly 12,000 trucks and drivers were taken out of service.”[2]

Capacity: A Truckload Perspective

There are many factors that have helped create the present “capacity-rich” environment; however, no one knows when the next downturn will occur. So, it’s important to take advantage of the current conditions and prepare your supply chain now for any down cycles in the future.

In late 2018, it became apparent that the TL market was shifting. This has continued into 2019 and spot rates are now consistently below contract rates in many lanes. 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.

Capacity: An Intermodal Point-of-View

In 2018, with a tight TL capacity market, many shippers looked to ship via rail instead of TL. This year, TL rates depressed compared to last year, and intermodal is not expected to have as big of a competitive advantage for shippers relative to the truck market.

However, intermodal still continues to be one of the most cost-effective ways to move freight across North America. An inclement weather event or external industry challenge could still impact or “flip” the TL market—making it important for shippers to have consistent rail capacity in place for the larger volume months ahead, regardless of any small savings opportunities currently available in the TL market.

Factors That Might Affect Capacity in the Long Term

Legislation: The ELD mandate transformed the trucking industry in 2018. And while the dust has finally started to settle and there likely won’t be any new regulations as transformative as the ELD mandate anytime soon, more legislative changes could be on the horizon.

Transportation professionals should keep an eye on these regulations that could have a big impact on trucking in 2019 and beyond:

  1. Electronic on-board recording devices
  2. Hours-of-service reform efforts
  3. New minimum wage rules
  4. New drug testing hurdles for drivers

Driver Shortage and Pay: The driver shortage, which is estimated to be at a deficit of 50,000 to 60,000 drivers by the end of 2019, is primarily an issue in the over-the-road long haul area. Today, the average salary for a class 8 truckers is $71,575 per year, but a recent study by the Bureau of Labor Statistics reported that driver pay, adjusted for inflation should be $110,000+ per year.[3] The driver shortage remains a significant challenge and will continue to have an impact on trucking capacity as it climbs.

Other key challenges that have the potential to affect the industry include:

Prepare Your Supply Chain Today, for Tomorrow

To help prepare for any challenges that might come up in the short-term or long-term, shippers should be thinking ahead. A few proactive steps they can take include:

  • Evaluating and optimizing routing guide strategies as market conditions shift
  • Actively and openly communicating with all facilities, receivers and carriers
  • Allowing some flexibility in pick-up and delivery times, among other areas, to help improve carrier and network performance
  • Increasing collaborative optimization with other shippers, utilizing dynamic continuous moves, co-loading across shippers and matching network flows to help capture carrier capacity
  • Working with customers and production planning teams to improve forecast accuracy and share these forecasts with carrier partners
  • Knowing all of your various customers’ missions and expectations—especially as they are so rapidly evolving
  • Enhancing access to key data points and always striving toward greater accuracy and predictive analytics

Shippers should also look to the expertise of their 3PL partners to help keep them informed of any market changes, as well as to glean deeper insights into their supply chain and work to optimize their transportation strategies.

How has the current capacity outlook impacted your operations?

[1] https://cvsa.org/news-entry/2019-roadcheck-dates-focus/

[2] https://www.fleetowner.com/ideaxchange/steering-roadcheck-safety

[3] https://www.bls.gov/ooh/transportation-and-material-moving/heavy-and-tractor-trailer-truck-drivers.htm#tab-5

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