As we enter the holiday season, the transportation industry faces tight capacity and a driver shortage, which means carriers are increasing rates for shippers. The American Trucking Associations estimates that capacity is tighter than it has been in years. This is primarily due to some carriers closing their doors early into the COVID-19 pandemic and others downsizing as demand in several sectors plummeted.
The economy as a whole faced a record-setting decline in the second quarter of 2020, where real GDP decreased 31.4 percent. But in the third quarter, after efforts to reopen businesses and resume activities, GDP increased at an annual rate of 33.1 percent. The economy is forecasted to grow about 3 percent in the fourth quarter as consumer confidence continues to slowly rebound after bottoming out in April. The recent surge of COVID-19 cases could derail estimates.
As we approach the end of a rollercoaster year, e-commerce, home improvement, medical, food and beverage, and residential construction continue to perform well, and each of these industries rely heavily on transportation. Other sectors, like travel and tourism, entertainment, and services continue to be impacted by COVID-19.
A shortage of safe, professional drivers is significantly impacting capacity. Industry wide, many older drivers retired early in the pandemic, and others have had difficulty renewing or getting new commercial drivers licenses due to closures of state motor vehicle offices. Moreover, thousands of drivers have been disqualified from driving since the Federal Motor Carrier Safety Administration’s Drug and Alcohol Clearinghouse came on board in January 2020. To combat the shortage, many carriers have announced driver pay hikes to help retain and attract safe, professional drivers—and the increases are likely to continue into next year.
To cover pay hikes, spot and contract rates are also increasing. According to DAT Solutions, van spot market load rates in October were up 33 percent compared with a year ago. Spot rates are likely to remain high heading into the holiday season. The Cass Truckload Linehaul Index, which measures per-mile contract linehaul rates, declined 3.4 percent year-over-year in September, but it was the highest reading since December 2019, indicating a turn in truckload pricing. Cass anticipates the index will increase over the coming quarters as carrier-shipper contract rates are renegotiated to reflect high demand and lower supply.
The Morgan Stanley Truckload Freight Index, which measures the demand for truckload services compared to the supply, declined through October but outperformed seasonality. Morgan Stanley projects 2020 ending modestly below 2017 as peak season further tightens capacity. DAT’s van load-to-truck ratio, a real-time indicator of the balance between spot market demand and capacity, was up 156.3 percent in October compared with the same period in 2019.
Capacity is tight despite trucking tonnage falling below 2019 levels. The ATA’s advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 6.7 percent in September after declining 5.3 percent in August—though the September 2020 index is still 2.7 percent below where it was in September 2019. The ATA largely attributes the lower 2020 volumes to a bifurcation of the freight market—some verticals have lots of freight, like retail and construction, while others have yet to recover from COVID-19 shutdowns.
By and large, the transportation industry is rallying from the declines in the second quarter, and the industry is likely to continue to perform well. As capacity continues to tighten, shippers must be able to find carrier partners with the capacity to haul their valuable freight.
Ruan’s Integrated Supply Chain Solutions offer it all, including Dedicated Contract Transportation, Managed Transportation, Brokerage Support Services, and Value-Added Warehousing. We combine the flexibility of our non-asset and asset-based capabilities with optimal technology and superior service focused on continuous improvement, cost savings, and supply chain efficiency. The Ruan team partners with customers to evaluate, optimize, and deliver a one-source, integrated supply chain solution. Our customers never have to worry about having a truck to haul their goods—we’ve got it covered, whether it’s on our truck or one of our carefully vetted carrier partners.
Are you operating a private fleet or worried about ensuring your freight gets hauled by your current carrier? Eliminate the headache by tapping into Ruan’s Dedicated Contract Transportation solution. With Ruan as your dedicated partner, you’ll experience these benefits:
- Elimination of driver labor concerns, daily driver management, training, turnover, litigation, and HR administration.
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- Focused attention on safety and regulatory issues.
- Ongoing investment in the latest technology.
- Availability of capital currently allocated to your equipment.
- Ability for management to focus on core competencies.
- Reduction in, or elimination of, liability, risk, and exposure of operating a private fleet.
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Read more about the benefits of Ruan’s Dedicated Contract Transportation here.
For an analysis of your supply chain network, please contact our solution engineering experts at (866) 782-6669 ext. 7.