The largest TL carriers continue to add capacity at a faster rate then the next tier of carriers, taking advantage of a more favorable pricing and truck utilization market, and low interest rates. Excellent data from Avondale Partners indicates that in each year from 2008 through 2012, the four largest TL carriers (Hunt, Schneider, Swift, and Werner) reduced capacity more quickly than the next 7 largest carriers during the recession and then added capacity more slowly through the tepid post-recession recovery. That changed in 2013, with the largest carriers adding capacity at a significantly faster pace (10.2%) than the second-tier group (3.3%). In the first quarter of this year, that pattern continued, with the largest carriers growing by 1.9% over Q4 totals, while the next tier grew by only 0.4%.
Despite the addition of trucks, the largest TL carriers collectively have 5% fewer trucks on the road today than they did at the end of 2007. The second tier have added 3% to their collective capacity over that time frame, but have not added as many trucks as the largest carriers have cut.
The trucking industry is highly fragmented with an estimated 167,000 active for-hire carriers, and these 11 carriers operate less than 10% of the industry’s capacity so it is difficult to draw definitive conclusions about capacity additions going forward. It is also a highly entrepreneurial industry, with a history of small carriers becoming medium-sized and medium carriers becoming large. The biggest carriers behaved more conservatively during the contraction and the slow-growth recovery, but they have become more aggressive in the current tighter-capacity market as they have greater financial ability to add trucks. The addition of capacity may indicate a belief among industry executives that freight volumes should continue to steadily grow over the next few years, and that pricing power will remain with the carriers. That pricing power will be a requirement to fill the seats of the additional trucks through higher driver pay.
The lack of growth among the second-tier carriers may be a result of uncertainty over the effects of federal regulations like the Hours-of-Service rules and CSA. The largest carriers are most capable of absorbing regulatory shocks and the associated increased pressure on margins. Despite the recent large carrier capacity additions, shippers must continue to develop strong relationships with the second-tier of asset-based carriers because they will grow quickly once they gain more confidence that the pricing environment has tipped in their favor. Shippers should also be using one or two large 3PLs/brokers to gain access to the tens of thousands of small carriers that are always seeking to gain market share, but lack the sales resources and name recognition to do so directly.