The collapse of Yellow Freight, the third-largest carrier in the U.S. less-than-truckload scene, made headlines beyond the industry, but in the meantime the debacle is playing out in the trucking sector at large — with the worst yet to come.
Since last year, a growing number of truckers have gone out of business as demand has shrunk, costs have risen and worsening overcapacity has pushed rates down.
Although some observers and players have predicted an imminent market decline, in recent weeks the downward trend has continued. According to a Federal Reserve study, commodity activity and demand fell from late August to early October, which the authors attributed to excess capacity, weak exports and fewer shipments of energy products.
And the combination of rising fuel costs and weak demand in August led to what was described as the toughest market conditions since the early days of the pandemic.
The FTR Trucking Conditions Index fell from a negative reading of -5.34 in July to -12.54 in August, and the index noted that increases in diesel costs have disproportionately hit small operators, “as they are less likely to benefit from fuel surcharges”.
The road of pain has lengthened month by month. last year trucker revenue rose 7% while costs rose 22%, according to Freight 360. In addition, many who struck out on their own during the pandemic bought trucks at inflated prices and are now finding it harder to make interest payments.
“As trucking valuations continue to plummet, many trucking providers are operating at a loss to maintain revenue streams,” said Paul Brashier, vice president of trucking and transportation at ITS Logistics. “As diesel prices continue to rise, more freight carriers are expected to exit the market.”
Smaller operators are struggling, added Paul Costello, chief economist for the American Trucking Associations. He expects more truckers to leave in the coming months as a result of a weak peak season, which is in line with forecasts in the latest edition of the Cowen/AFS Freight Index, produced by investment firm Cowen AFS Logistics.
“Market conditions for trucking companies look solidly negative in the first quarter of next year, as we do not anticipate a significant increase in capacity utilization or freight rates and freight demand is stagnant,” commented Avery Vise, Vice President of FTR.
In the absence of an increase in demand, a significant drop in the number of truckers should affect the current spare capacity, but so far this has been mitigated as many operators who closed their own business have joined larger companies, Mr Vise added.
Truckers hoping to survive the expected tepid peak season are likely to see more pain in 2024. According to some forecasts, the miscapacity situation may not balance out before the end of next year, although continued trucker exits will likely result in lower capacity in some markets.