Jason Seidl has been in the trucking business for the better part of 30 years, first working on the front lines in freight operations, then moving to the investment community, where today he’s managing director and senior transportation analyst for investment firm TD Cowen. Through all that time and all the different business cycles he’s experienced, he hasn’t witnessed anything like the current market cycle. “I’ve never seen a downturn that’s lasted this long,” Seidl says.
Part of the reason, he believes, is the “crazy period” the markets lived through during the pandemic and post-pandemic cycles, and the supply chain crises that resulted.
“A ton of carriers rushed in [to the truckload market] and would have left earlier, but they are hanging in longer because of an infusion of government stimulus money,” which helped shore up their balance sheets and enabled them to weather the downturn.
The other piece: “There are more brokers in the market today with better technology, and that has provided [truckload] carriers with other options to find freight, all of which has kept them in the market longer than they normally would have [stayed].”
Andy Dyer, president of transportation management for nonasset-based third-party service provider AFS Logistics, agrees. “We lived through a post-pandemic demand bubble the likes of which most of us had never seen,” he says, recalling a time when trucks were so scarce, he was posting loads at $9 a mile. “The bubble hit, capacity surged to meet it, and even though demand is starting to normalize, we are still oversupplied.”
He echoes Seidl’s point about the rising role of brokers and other nonasset-based intermediaries. “Back in the 1990s, brokering in the freight space accounted for 5% of transactions,” he says. “Post-pandemic, that’s now over 20%. I am convinced that absent a seismic demand event, we will not get corrected on the price side until we have a meaningful and sustained supply side correction.”
It’s a sluggish market where industrial production is weak, with the monthly ISM (Institute for Supply Management) report in June again going negative, marking 19 out of the last 20 months with a score of under 50, which is considered in contraction territory. Yet “the consumer looks OK … for now,” says Seidl.
CAUTIOUS OPTIMISM
Interviews with fleet operators confirm that they’re essentially all facing those challenges but also reveal some cautious optimism that the bottom has been reached and the market is about to turn. “For the truckload segment, demand has yet to truly break out, and further attrition of excess capacity is still needed,” said Adam Miller, chief executive officer at Knight-Swift Holdings Inc., the nation’s largest truckload carrier, in the company’s recent second-quarter earnings call.
And while he noted that the company has a long way to go to return to its target performance levels, Miller sees reason for hope. “It is starting to feel like the bottom is behind us for this cycle,” he said, adding “if trends over the past few months continue, we should see demand building as we exit the third quarter and some return of seasonal activity for the fourth quarter for the first time in years.”
It has been a tough economy for truckers, yet at less-than-truckload (LTL) carrier Old Dominion Freight Line (ODFL), the news isn’t all bad. “We are managing to grow our market share, and we do that by providing what customers perceive as solid value for their transportation dollar,” says Greg Plemmons, ODFL’s executive vice president and chief operating officer. “We have established a premium offering, and the good news is there is always a market for quality service,” he adds.
The toughest task? Managing in an environment where costs across the board continue to rise. “We feel the same inflationary pressures as our customers—and we all—do,” Plemmons says. Nevertheless, he notes that as the year has proceeded, ODFL has been able to secure “modest” rate increases—“maybe a bit less in 2024 in terms of percentage with our contract customers, but still solid.”
And while it’s always difficult to call a market turn, “we feel like we are bottoming out as an industry,” with growth returning “to something we’re more accustomed to” in the second half of the year and into 2025, Plemmons adds. “My crystal ball is a little fuzzy right now, but if conversations we’re having with customers are any indication, they are feeling more optimistic [today] than they have in the past year and a half.”
ODFL isn’t letting its foot off the investment gas pedal, either. Its CapEx for this year will come in at around $750 million between rolling stock, facilities, IT, freight handling equipment, and other needs, according to Plemmons. This year, the company is opening six new service centers, ending the year with 261 terminals, which represents an increase of about 9% in capacity for the network. It also has some 100 real estate projects under way or on the drawing board. “It’s never a dull moment” on the real estate side, he says. “You can’t wait around until you need them; you have to start well in advance.”
Plemmons says ODFL strives to maintain “about 25% excess capacity [now closer to 30%], so maybe we are the best positioned to handle a turn in the economy when it comes—and it certainly will come.”
A “MODEST” RECOVERY ON THE HORIZON?
With economic headlines providing a mixed bag of news—signs of the economy’s resilience, the prospect of weaker employment and wage growth, and the likelihood of a larger and earlier Fed rate cut—these economic issues are inevitably entering more conversations, notes Avery Vise, vice president of trucking for FTR Transportation Intelligence.
“Putting aside the headlines, our overall forecast is for a pretty modest recovery this year,” with 2024 volumes up 1.6% year over year—“solid but nothing to be excited about,” Vise says. He adds that he sees next year shaping up to be a bit stronger, with growth on the order of 2.4%.
The big issue, as it has been for the past two years, continues to be overcapacity. “We still have something on the order of 95,000 more for-hire carriers [primarily truckload operators with no more than two trucks] today than before the pandemic, about 37% more.” That increase in the carrier population also accounts for “the majority of the roughly 250,000 more drivers in the market today versus prepandemic,” Vise adds. “There is still a lot of excess capacity to match up against increasing freight demand.”
Yet he believes “we are in the mechanics of recovery.” He cites FTR’s estimates of “active” utilization (i.e., the utilization of trucks with drivers), which is FTR’s core metric for assessing market tightness and which represents a measure of the number of trucks needed to haul the freight that’s available. “That’s coming off a trough [last year] and has been trending up most of this year,” he notes.
He expects that by this year’s fourth quarter, “we will be in line with the 10-year average for utilization of 92%.” Vise further projects that in the first and second quarters of 2025, active utilization industrywide will reach 95%. “And that is when you get significant upward pressure on rates,” he notes.
STRUCTURAL CHANGES UPENDING THE MARKET
Then there are the effects of structural factors that are changing the market long term, what Vise calls “a permanent shift in capacity from larger to smaller carriers operating in the spot market on behalf of brokers.” It’s a fundamental change in how the market operates, he says, adding “it’s not just that we have overcapacity but why?”
A lot of that has to do with the rise of intermediaries—brokers and freight forwarders—using flexible and more sophisticated digital freight platforms. “They have visibility they’ve never had before into where those small carriers are, what hours of service they have available and when, their preferred routes and loads, and where they want to go next.”
Vise cites as well some revealing data on empty miles from the annual truck costing report published by ATRI (the American Transportation Research Institute). “The average empty mile percentage for the entire for-hire industry was somewhere between 14% and 15%,” he notes. “But empty miles for smaller carriers was lower, 10%.”
“That’s counterintuitive. Technology has changed that,” he’s observed. “You [the small one- or two-truck carrier] can program in your ‘wish list’ of loads, which then pop up [on your smartphone] based on the preferences you set up and the algorithms behind the app.”
These digital planning and execution tools are not just conveniently available on a driver’s smartphone, they’re also extremely effective at quickly and accurately matching loads to trucks in near real time. “Drivers have more ability to find the loads they want faster. If you can get one or two more loads a week and cut down on empty miles, that can offset the impact of stagnant rates,” Vise says.
All in all, planning and forecasting for truckers has become that much more fluid and difficult, fraught with more uncertainty than ever, Vise says. “Everyone wants to analyze the market based on what’s happened in the past, but that’s not working,” he explains. “There have been so many structural changes that people have not dealt with before; that makes relying on historical norms inaccurate, if not downright dangerous.”
GETTING AHEAD OF THE CURVE
Two other carriers that aren’t letting the stubborn freight recession curtail their expansion plans are LTL truckers A. Duie Pyle and Estes Express Lines.
“Rates are relatively stable, and there is decent pricing discipline in the market,” notes John Luciani, chief operating officer of LTL solutions for Pyle, adding that over the first half of the year, the carrier’s shipment count per day was up about 11%. “Retail is probably driving a lot of the activity right now. Shipment size is down, while bill [of lading] count is up. [Retailers are] buying [and shipping] in smaller quantities as inventory levels continue to contract.”
At the same time, “customers are clawing back some of the accessorial [charges] and are really focused on minimizing costs where they can,” Luciani adds. And they are testing the market. “Customers who have volume are leveraging that. We are seeing some rate pressure from customers taking their business out to bid,” he notes.
That’s not stopping Pyle from growing its network. The Northeast-focused carrier has added 77 doors at its Maspeth, New York, facility to complement capacity at its New York City terminal in the Bronx. It also bought new terminal properties in Camp Hill and Erie, Pennsylvania; Rochester, New York; and Bridgeport, West Virginia. It will end the year with 34 terminals, and a workforce of 1,200 pickup and delivery drivers and 400 linehaul drivers serving the Northeast U.S.
Webb Estes, president and chief operating officer at LTL carrier Estes Express Lines, has a simple definition of a freight recession: “when freight [volume] is less than it was the year before.”
In the current environment, “it feels more like we just came off a mountaintop of demand. We were on a really big high for a couple of years,” he recalls. Now, Estes is dealing with a market where “we are trying to figure out what the new normal is.”
The last two years have brought unprecedented challenges for a company Webb’s great grandfather founded four generations ago, in 1931. “After [living] through the Covid onslaught, then a booming market, then YRC going out of business, and then a cyberattack, we feel we can handle whatever comes our way,” he notes. “We have built a gritty and resilient team that thrives on challenge.”
Estes was a big participant in the auction for YRC’s assets. The company ended up acquiring (by purchase or lease assumption) 36 terminal properties as well as purchasing 6,800 YRC trailers, which have nearly all been rebranded with Estes livery.
The company has added 24% more dock doors to its network over the past three years. So far this year, Estes has brought online an additional 452 doors and plans to get that number up to 1,430 by the end of the year. That’s from building and acquiring new terminals as well as expansions at existing facilities.
“We have been able to create the capacity we needed to respond to customers in the post-YRC environment,” Estes notes. The company will end the year with a network of 280 terminals supporting 22,000 employees operating 10,400 tractors and 40,000 trailers.
As for peak season, “the only nuance about this peak season is that it will be shorter,” Estes says. “Thanksgiving is on the 28th, so we have five fewer days [between Thanksgiving and Christmas] than last year. This year will have the shortest window between [the two holidays].”
LOOK AHEAD, NOT BACK
All downcycles eventually flip. Yet in the view of Jim Fields, chief operating officer for LTL carrier Pitt Ohio, the key is “to look forward, not back, regardless of what is happening to the economy.”
Fields and his team are focused on two primary objectives to improve the business and cement the support of Pitt Ohio’s customers: strategically applying technology that further digitizes the business—particularly automating back-office functions and eliminating wasteful manual work like rekeying data or scanning documents—and hiring and retaining the best team of people possible.
Even with technology increasingly automating many parts of trucking, “this is still a people business,” emphasizes Fields. “We want the best, most professional, safest drivers. Dock workers who take care of the freight as if it were their own. Managers and supervisors who help our employees grow and succeed, and who treat them with respect.
“We want to take advantage of the different skill sets of our employees to advance the capabilities of the company and the services we provide to customers,” Fields adds. “When we’re successful at that, we all win.”
