Trucking Market Cycle: A Tale of Supply-Driven Growth

The recent trucking market cycle has garnered significant attention from industry insiders and analysts. Data indicates that the current cycle is more supply-driven than any in recent history, with room to run. This development raises questions about what this means for carriers, shippers, and the broader economy.

The Accepted SONAR Truckload Volume Index (ASTVI) measures truckload tenders carriers accept under existing rate agreements. It’s a reliable proxy for total truckload demand when rejection rates are relatively low. However, when rejection rates rise, ASTVI becomes more likely to undercount total demand.

One striking aspect of the current cycle is the slow growth in supply. Despite recent Class 8 orders, carriers report annual declines in active units. Fleet replacement, not growth, drives these new orders. This lack of investment in new capacity suggests that the market may be due for a correction sooner rather than later.

Shippers are increasingly turning to intermodal transportation as a cost-saving measure relative to trucking. While demand-side conditions tend to be volatile, supply-side shifts are slower. Even if demand deteriorates further, it may take time for the market to correct.

A comparison of recent ASTVI levels to those in 2019 is instructive. In 2019, rejection rates were below 5% for most of the year and below 6% last fall – roughly the same demand but with more than twice the tightness. This suggests that there’s still room for growth in the market.

However, this growth may be short-lived if carriers continue to prioritize fleet replacement over investment in new capacity. As the industry navigates these changes, one thing is clear: the trucking market cycle is far from over.

The Slow Crawl of Supply Growth

Recent data on Class 8 orders indicates that carriers are focused on replacing aging equipment rather than investing in new capacity. Fleet replacement, not growth, drives these new orders. This trend suggests that carriers are prioritizing maintenance over expansion.

This has significant implications for the broader economy. Historically, trucking has been a key indicator of overall economic health. A decline in freight demand often precedes broader economic downturns. If carriers continue to prioritize fleet replacement over investment, it may signal a slowdown in economic growth down the line.

The Rise of Intermodal Transportation

Shippers are turning to intermodal transportation as a cost-saving measure relative to trucking. While this may be a short-term solution, its long-term implications for carriers and shippers alike remain unclear. One possible outcome is that carriers will begin investing more heavily in intermodal infrastructure – potentially leading to increased costs for both carriers and shippers.

Alternatively, shippers may find themselves caught between the high costs of trucking and the lower efficiency of intermodal transportation. This could lead to further volatility in the market as shippers adjust their strategies to accommodate changing supply-side conditions.

Historical Context

The current cycle has precedent in 2019, when rejection rates were below 5% for most of the year – roughly the same demand but with more than twice the tightness. This suggests that there’s still room for growth in the market.

However, it also raises questions about the sustainability of this growth. If carriers continue to prioritize fleet replacement over investment in new capacity, it may signal a slowdown in economic growth down the line. Historically, trucking has been a key indicator of overall economic health. A decline in freight demand often precedes broader economic downturns.

The trucking market cycle is complex and influenced by various factors. However, one thing is clear: the industry must adapt to changing supply-side conditions to avoid a correction sooner rather than later.