As the carriers on the road continue to outweigh the demand, trucking capacity’s slow decline has affected the freight market. Overcapacity has remained persistent over the last few years despite a minor recovery. In 2023, trucking companies generally reported lower operating income, higher expenses, and a 25% decrease in tender volumes from 2021. Tender volumes are load offers from shippers to trucking companies to move cargo and can indicate the demand to ship. Fast-forward to 2024, and the trend continues, with first-quarter shipper spending down 27.9% compared to last year. Both shippers and truckers have felt the impact of overcapacity, which has been different depending on the players involved.
How Did The Capacity Become So High?
The current market conditions of overcapacity trace back to the coronavirus pandemic. COVID-19 caused a scenario where the international and domestic shipping demand reached unprecedented levels. There was a surge in transporting essential products like food and medical supplies and a boom in e-commerce. When goods come into the U.S., the requirements for last-mile delivery by truck increase. The result was a shortage of drivers to cover the demand, which ended with new entrants pouring into the market. As the pandemic started to end, so did the high demand to move cargo domestically. Meanwhile, the number of truckers in the market remained constant, leading to an overcapacity in the industry.
DAT Freight and Analytics notes that in June 2020, 241,835 registered for-hire carriers with a rate of 10,000 pounds or more. By July 2023, that number rose to 475,371. High freight rates that were present in 2021 started to plummet as the demand to ship fell. The excess truckers contributed to the lower rates and an increase in diesel prices, leading to a recession. Analysts note that freight recessions in the industry typically happen and last from 17 to 23 months. However, the current downturn has lasted nearly 25 months and has no end in sight.
What Does Trucking Capacity’s Slow Decline Mean For Industry?
The current overabundance of carriers in the market is directly impacting the industry. A significant effect for truckers is that the overall profit declines due to lower rates and demand. Smaller drivers and larger companies have left the market in the last few months, leading to a slow decline. However, the decline in capacity has been slow to where the overall recovery of the industry has slowed down. Despite the negative impact that the high capacity has had on carriers, it can be beneficial for shippers. When the freight market has an overabundance of truckers, rates for cargo movement tend to lower due to competition.
While lower rates may seem attractive for shippers wanting to move their goods domestically, they should take steps to ensure their shipment’s success. An ideal way for a shipper to navigate the current industry is by using the assistance of a freight broker. Brokers are intermediaries who find a trucker to move a shipper’s cargo. They help educate clients on what to expect and the best course of action for their supply chain. Talk to a freight broker at info@a1fsinc.com or 786-375-9420 to find a carrier to transport your goods anywhere domestically. We have a network of carriers with numerous solutions for achieving your goals.