GREENSBORO, NC -- If you haven’t already noticed, and we really hope you haven‘t, the American transportation industry has entered another period of diminished capacity.  This is a time where there is more freight to haul than there are trucks to haul it.  In the past few months, we’ve heard many stories of truckload (TL) carriers selling equipment, downsizing their fleets, or going out of business due to a sluggish economy or rising fuel prices.   Some less-than-truckload (LTL) carriers are following suit.   This unwelcome trend has resulted in more collective freight than carrier capacity.  Unfortunately, it appears that the carrier markets downsized faster than the economy.  As a result, manufacturers and distributors can expect to encounter increased rates in the TL market and a downturn in services in the LTL market.

Less-Than-Truckload

 Problems in the LTL market have spurred a tremendous downturn in service.  In March, the monthly truck tonnage index compiled by the American Trucking Associations dropped 3.3 percent.   Revenues increased in the top LTL carriers, but costs increased even more sharply – leading some LTL carriers to absorb the added costs in an effort to stay competitive.  Trying to operate on such thin margins led to overruns, delays, and mistakes, which ultimately resulted in service failures.   A typical LTL company’s largest costs are usually associated with local pick-ups and deliveries.  With fuel costs continuing to rise, many LTL carriers have been increasing the workloads of their ‘local peddle’ drivers.   This results in more ‘bring backs,' which in turn cause service failures. 

Truckload

With thousands of TL carriers going out of business in the first quarter, and larger TL carriers selling equipment off at a frightening pace, the industry is suffering from a lack of trucks.  We at M33 have worked with several clients to move some strategic lanes to rail service.  This is a great way to increase capacity in our system, but is not always a fit for every lane.  Normally, such a transition adds at least a day to the service, and some manufacturers and distributors need to maintain tighter control over their shipments.  The rails have been filling fast in recent months, and advance reservations seem to be the norm.  With the increased interest in rail service, we have seen a shortage of containers as well.

The Good News

We have not seen a capacity shortage like this since 2005 when Hurricanes Katrina and Rita paralyzed much of the Gulf Coast.   We have enjoyed the mostly flat TL rates and the aggressive LTL rates since that time.   Some of the larger TL carriers are adjusting their fleets to take advantage of the overabundance of truckloads, which will make a difference with the TL capacity issue.  The thing to remember is that transportation capacity is cyclical; carriers will add equipment when they see opportunities for additional business, and will limit their costs during lean times.  We are currently at the downside of the cycle, and carriers seem to be reacting to this capacity downside.  Eventually, we’ll get back to a more stable and reliable capacity.

What Can You Do?