Why the Truck Market’s Sharp Turn Caught the Freight Industry by Surprise

The MIT FreightLab’s latest industry roundtable explored the drivers behind today’s extremely tight market for truck capacity and the broader implications for supply chains.

David Correll
Mar 5 · 5 min read

Supply and demand fluctuate in the market for truck transportation, as they do in any other market. However, in U.S. trucking, the fluctuations are often extreme, and when this happens, it is tempting to believe that the latest swing is unique.

The extreme market conditions now being experienced may actually be unprecedented, according to attendees at the Securing Transportation Capacity in Challenging Markets roundtable on February 25, 2021. Hosted by the MIT FreightLab, some 25 companies including shippers, carriers, and third-party logistics providers were represented at the invitation-only event.

In sharp contrast to 2019, when an oversupply of trucks depressed prices, carriers are now riding a wave of capacity shortages and soaring freight rates across every mode. But unlike previous turnarounds, this one is fueled to a large extent by structural changes resulting from the Covid-19 pandemic. Freight carriers’ usual customer networks were upended when some manufacturing facilities were closed down while others remained open. Moreover, home-bound consumers began ordering many more goods online, creating a huge increase in demand for delivery services.

While the pandemic’s influence will, at some point, abate, many of the changes to the freight transport market it has brought are long-lasting.

Bad news for truck driver recruitment

A historical cause of this problem is that an increasing number of today’s drivers want to spend more time at home than on the road. The stresses and strains of coping with the pandemic may have given these drivers even more reason to demand more home time.

The pandemic has also complicated their driving schedules. Virus infections — both real and suspected — impose quarantining requirements that take drivers out of the workforce for at least two weeks. The closing of truck driver schools due to the pandemic has also crimped the supply of drivers.

Truck drivers also have to deal with operational complications arising from measures to deal with Covid-19. For example, the closing of driver rest areas and stricter cleaning protocols at freight facilities can add delays and frustrations to the unloading and loading of vehicles.

Roundtable attendees also pointed to the negative impact of the Federal Motor Carrier Safety Administration’s recently introduced Drug & Alcohol Clearinghouse on the number of available drivers. This first national database of commercial driver substance abuse violations was introduced in January 2020 and took effect at the same time that Covid-19 was ravaging American supply chains. A Final Rule was published in January 2021, which increased the fines for violations and exacerbated this tension.

Caught off guard by the shift

As several attendees explained, when the market tightens, the impact is usually mode-specific; the brunt of the change may be felt in, say, the truckload segment. But this time, the effects are across the board. “We are not getting a break anywhere,” commented one shipper. In response, a leading electronics manufacturer is now much more creative in the way it finds capacity. “I’m telling my team to go out and beat the bushes,” said the company representative. Another tactic the company is deploying is to seek ways to lock into longer-term freight contracts.

The rate at which “the market ricocheted back up” took some by surprise, one shipper observed, and the depth of the uncertainty in today’s market is unusual. “No one knows when supply and demand will be back in balance,” he said.

Also, the high level of market volatility means more frequent shifts in strategy, commented a high-volume shipper. The attendee’s freight transportation management function resides in the company’s procurement department, and “it’s tough to develop a one-, two-, or three-year plan,” he said.

Breaks in the clouds

That said, there are some silver linings.

A shipper observed that in today’s uncertain environment, technology is proving its worth. The attendee pointed out that shippers and carriers are nimbler today thanks to technology that improves supply chain transparency and visibility.

The challenge of managing uncertainty can also provide an incentive for positive change. For example, an ever-present problem in the trucking industry is excessive dwell time at shipper and receiver facilities. There are signs that this issue is attracting attention as shippers strive to find ways to secure transportation capacity from carriers in a tight market. Almost 90% of respondents in a survey of roundtable attendees agreed that, aside from price, low dwell times at freight facilities is one of the things that matter the most in helping shippers to sign up carriers to move their freight. “Drivers are opinionated; it’s good to have them on your side,” said a shipper.

To this end, a company at the roundtable has created a social-media-driven rating system that drivers can use to flag subpar as well as driver-friendly facilities.

The news regarding capacity is not all bad. At the event, a freight solutions provider noted that it is seeing a marked increase in the number of owner-operators on its platform. The favorable outlook for freight rates provides a financial incentive for these entrepreneurs to start their own businesses and gain more independence over their work schedules.

The session concluded with a freight shipping market analysis based on a systems dynamics model of global commerce. The presentation suggested that today’s exceptionally tight truck market might not be as bad it could have been. The shutting down of manufacturing and retail capacity across the world in 2020 may have dampened shocks to global commerce overall. Similarly, ongoing restrictions inspired by Covid-19 on the amount of freight capacity available may have actually helped reduce both panic ordering in industries and inventory stockpiling.

The MIT FreightLab is monitoring the status of the U.S. trucking market and researching key drivers of the market’s dynamics. Contact the author (dcorrell@mit.edu) for more information.

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