Few sectors of the economy bounced back from the economic crash caused by Covid-19 faster than trucking. And if new equipment orders are any indication, truckers are expecting the market to remain strong well into 2021.
Trailer orders from U.S. and Canadian fleets reached their lowest point in the modern era in April, at just 300 units, according to data from industry analyst FTR. However, they shot up to 54,200 units in October, marking the third-best month ever, according to ACT Research. Trailer orders are seen as a leading indicator of trucking market conditions.
“Increases in both freight volumes and rates, along with capacity challenges, have influenced fleets to aggressively enter the market,” said Frank Maly, director of commercial vehicle transportation analysis with ACT Research.
Class 8 truck orders are also surging, from a record low 4,000 units in April, to a robust 40,100 in October.
“Fleets became much more confident about future freight demand and began placing large orders to replace older units and for expansion purposes, as capacity tightened. In just a few months, the industry has gone from fear, to hope, to optimism. It appears the industry has sloughed off the uncertainties about the pandemic for now,” said Don Ake, FTR’s vice-president of commercial vehicles.
Spot market volumes and rates in the U.S. and Canada tell the tale of an economic recovery driven by consumer spending shifts that benefit trucking.
“The substitution of spending to goods and away from services is driving a recovery in freight demand and, coupled with slow capacity re-engagement, has led to unprecedented rate increases,” said Tim Denoyer, ACT’s vice-president and senior analyst. “We expect the truckload market to rebalance over the course of 2021, as drivers gradually return, and with substitution back to services once a vaccine is available. But we don’t see a big loosening as recoveries in housing and industrial should support freight demand.”
Ted Daniel, CEO of Titanium Transportation, told analysts during a Q3 earnings call that the company is benefitting from tightening capacity in the U.S. He is projecting contract rates with shippers to increase three to five percent next year. “There is some concern on the part of customers to lock in [capacity],” Daniel added.
FTR’s Trucking Conditions Index reached its third-highest reading in September, reflecting strong rates for carriers.
“We envision trucking conditions remaining strong for a while, probably well into 2022, although we could see some near-term softness once we normalize retail inventories,” explained Avery Vise, FTR’s vice-president, trucking.
“An industrial recovery should support broad-based growth in freight volume. Robust spot rates already are starting to push up rates in the much larger contract arena, and constraints on the driver supply stemming from the pandemic likely will maintain that pressure. However, continued strong economic recovery is not secured given the latest surge in Covid-19 infections and a political environment that likely makes further relief and stimulus more difficult. The road ahead is still not crystal clear.”
Capacity is likely to remain tight in 2021, as the pandemic has hastened the retirements of many senior drivers, and licensing and training facility closures have prevented new entrants from obtaining commercial licences and taking their places.
Trucking HR Canada recently produced a labour market update that indicated transport truck driver unemployment was just 3.9 percent in September, compared to 8.4 percent across the broader population. The organization said the upward trend in employment is even higher than it predicted, signalling that a return to pre-Covid labour shortages could happen sooner than anticipated.
“This factor serves as an urgent call to action for industry and government to work together to overcome this labour shortage so as not to hinder the economic recovery,” Trucking HR Canada said.
Two other factors could keep trucking capacity tight through 2021. Insurance costs are skyrocketing for many carriers, forcing some to abandon the U.S. market, while others are being squeezed from the industry altogether. Trucking insurance rates are on the rise as insurers have exited the market due to increased losses stemming from increasing costs of accidents and claims, and nuclear verdicts against truckers.
And on the regulatory side, an electronic logging device (ELD) mandate will be implemented for federally regulated Canadian carriers in June 2021. A recent Pulse Survey by sister publication Today’s Trucking found 45 percent of responding fleets currently don’t use ELDs, and 37 percent said they will either not be ready for the mandate, or are unsure of their readiness. This, too, could squeeze some carriers from the market or have them scrambling for an exit through acquisition.