Thanks to the coronavirus pandemic, the Freight environment was marked by high demand and a supply chain disruption, which led to the spot market to soar. For those that are unaware, spot market rates, also known as a spot quote, is a one time fee that shippers pay to move a load at the current freight market pricing. Spot rates are short term freight pricing that reflect the real-time balance of carrier supply and shipper demand in the market.
However, data from the Federal Motor Carrier Safety Administration (FMCSA), the rates and demand have since declined. Data shows gains in carriers with one power unit and one driver side by the end of 2020, with numbers rising from 738,181 at the end of 2019 to 924,705 in 2022.
This year however, owner-operators have had to compete with not only declining spot rates, but also the rise of fuel prices that is continuously driving up their operating costs. Since the supply has been growing gradually since the end of the last year, it is now actually higher than it was prior to the pandemic. Because of this, the owner-operators who turned towards spot rates, have begun to shift back towards fleets.
The increase of fleets are made possible based on a few different factors. One of the most important is driver employment. Based on current data, driver employment rate is up roughly 4% to 5% compared to what it was before the pandemic. It is up even higher, 8% to 9%, when looking at long haul driver employment. Coupled with the declining spot rate prices with his diesel costs, they are turning towards fleets to run their businesses.
One drawback to this could be if fleets reach hiring limits, which would prevent fleets from accommodating all of the owner-operators who abandoned their authority. Hiring limits could lead to a net reduction in capacity, which would hurt the trucking industry.
Further issues with the increase of companies turning towards fleets, would be a lack of big rigs available to companies. For example, Shain Ferriss, Greenmiles has roughly 25 power units, and wants to increase the number of trucks next year, but everyone else wants the big rigs as well. This week Ferris found out that 15 of his trucks ordered in the spring would not be delivered this year, the only way they will be able to fulfill the order is if there are cancellations, which is highly unlikely. Production and supply chain issues have made it nearly impossible to get a new truck during 2021 to a lot of 2022. For an idea about how expensive it could be to purchase a new truck, the prices peaked in April of 2022 hitting $140,000 for a 3-year-old used truck!
Thankfully, there is a light at the end of the tunnel as manufacturers have delivered 81,000 trucks to fleets within the last three months, which is up 30% during the same period last year. Major companies like Old Dominion are spending millions of dollars to get the new equipment, and even the smaller companies are looking to update their current rigs.
There is some anticipation for spot rates and demand to normalize midway through 2023, but there could be some spikes around the holidays and produce seasons. Within the last five weeks alone, there have been 10,000 net deactivations of small motor carrier authorities according to Denim Senior Sales Manager Ashley McMillan. The smaller carriers are highly dependent on spot-market rates, and since they are currently at rock bottom due to inflation, raising fuel costs (up 50% from the previous year), maintenance and insurance costs, many small carriers will be out of business. However, this would not be of major concern as it more than likely won’t impact capacity and will not create issues during peak season simply due to the tender volumes still remaining deflated.
During the pandemic, the trucking industry saw a high number of trucking companies turn towards spot market rates to increase their revenue. However, thanks to inflation, high fuel prices, a drop in spot-market rates, and an increase in the driver employment rate, the trucking industry is starting to turn back towards fleets instead of the spot-market industry. This of course could hurt some of the smaller trucking companies who relies on spot-markets, but should not hurt the trucking industry on a whole.
Ship A Car, Inc. is a full service freight broker; therefore, we are able to provide you with the best rates on any given day to transport your vehicle. Call us now at (866) 821-4555 to ship your car.