The US trucking market limped through a dismal summer, and the misery is expected to continue into next year.
Rates have risen, but this was the result of diminishing capacity, not of a healthy market, and despite tepid demand, tender rejections are soaring, which has prompted warnings of a structural crisis for the industry.
Not everybody sees a sector in crisis, though.
At first glance, the industry is recovering. US Bank’s latest Freight Payment Index shows spot rates for linehaul in August 35.6% higher than a year earlier, while contract rates were up 20.1%. However, spot loads dropped 3.2% from July, while contract loads retreated 1.3%. Year on year, contract loads were 27.7% lower and spot loads shrank 5.7%.
Bob Costello, chief economist of the American Trucking Associations, noted that truck tonnage had declined in four of the past five months.
Clearly the rates reflect the contraction of capacity, which has been driven primarily by Washington’s push to remove non-domiciled drivers and those with insufficient English language skills from the market. In addition, rising costs and the Supreme Court’s ruling that brokers can be held liable for accidents caused by truckers – which has caused brokerages and 3PLs to tighten their carrier pools – have been forcing small operators out of the market.
In this situation, shippers have found moving their goods more challenging. Tender rejections are soaring; they climbed to 14.3% after Labor Day (7 September) – the downturn that began in 2023 ushered in rejection rates of around 5%
This discrepancy, even wider when the slower demand curve is factored-in to the equation, has caused worries that the market has a structural problem that rising demand seems unable to fix. Capacity has shrunk sharply and is unlikely to show significant gains in the near future, as the factors that have reduced it remain in place. Neither is the US administration going to step back from its crusade to weed out truckers deemed unsuitable, nor is an end of the Middle East conflict in sight, which would bring down diesel costs.
As MVP Logistics pointed out in a blog in June: for manufacturers, “a tender rejection on a critical inbound or outbound lane is not only a freight cost problem, it becomes a production problem when inbound components arrive late and line time is lost. It becomes a budget problem when spot rate premiums replace contracted rates on lanes that need coverage every week”.
Beyond this, rising tender rejections are usually harbingers of upward pricing pressure – an unwelcome scenario for shippers faced with elevated costs from inflation, tariffs, and disruptions.
An alternative view of the situation is that the sharp increase in declined loads should be seen as a wake-up call for shippers. Satish Jindel, founder and president of SJ Consulting, thinks the alarm bells are too shrill.
“This is not a crisis,” he said. “You don’t have shippers complaining that their freight is not moved. No freight is left behind.”
He argues that there is plenty of available capacity that goes to waste as a result of bad habits that still prevail in the industry. Shippers ought to optimise their surface transport and maximise loads rather than continue to ship lots of air, he says.
“If you consolidate your traffic, you may spend more on an individual shipment, but you spend less overall,” he explained.
Truckers would also benefit, as their margins would improve, he added: “If you move three 1,000kg shipments three times a week instead of two shipments of 1,500kg, your margins are worse.”
Truckers that are struggling to keep their heads above water may favour more frequent injections of income over longer-term margin improvements for the sake of cash flow, but overall improving margins should be the way to go, he added.
Having preached load optimisation for years, Mr Jindel is not holding his breath that the current situation will trigger a broad change, though. Shippers would have to adopt a more comprehensive approach to their logistics, which could only be pushed through from the top. But even this is unlikely, as financial targets set for CEOs usually do not reach into logistics management, he said.
So, by some measure, this predicament could be called a structural crisis.
“It is a pretty broken model,” admitted Mr Jindel.