Al’s Corner – June 2022
Tricky Times Ahead for Truckers and Shippers
Nothing to promote for the St. Louis Transportation club for this month.
Update, our May Spring Golf Tourney had a huge turnout at Eagle Springs in North St. Louis. Ninety-two players and another 10-volunteer staff, led by Brad Reinhardt, made it go well. The day was pulled off even with the threat of uncertain and scary weather that came through at the end of the day on the course. But our transportation club attendees are a hardy and fearless bunch, so it all worked out! Thanks everyone!
Ok, on to my monthly topic. So, for the last 2 years freight rates have been going up bigtime! Now, after this long, unusually long time in our industry, they are dropping. The problem is fuel is still at ridiculously high levels, the highest ever.
History over the years would go like this in a up market rate flow.
Because of the lure of high profits large carriers would add drivers and capacity to make more money. The problem with this flooding of the market was it would ultimately kill the rates and drive prices down. This pandemic time period was different. It was hard for large carriers to add drivers as the lifestyle caused lack of interest. Plus, when people stayed home, they bought more home improvement projects and such, instead of eating out or going to movies and other entertainment that was closed. The fear of catching covid hurt as well. This caused trucking demand to soar. Then came the problem with buying new equipment (Tractors and Trailers became scarce). Any kind equipment new or used was hard to find and trucking capacity shrunk or stayed the same as older drivers left the market and younger people have little interest. Couple this the increased price of tractors and trailers, prices remained or grew higher. Smaller carriers jumped in too with the lure of high priced and profitable rates. International freight was a mess as well with shortages, overseas city and plant shutdowns. Then gridlock at the ports occurred when things finally ramped up. Terrible. That is a very high-level overall look at the situation over the past 2 years.
Now in June 2022.
The shipping of home goods has slowed as people start living their lives again, and thus a little slowdown in home goods buying. Here is one of the problems, base trucking rates are failing, but fuel and the cost of equipment is still high. On fuel, large carriers have a huge advantage over smaller carriers as they buy huge amounts, thus getting a better price, and hedge in prices ahead, I believe. So, it is predicted that the 130,000 small 1-5 truck carriers that entered the market during the pandemic, now will either close, go under, or hook up with a huge carrier. I doubt that the large carriers will add enough equipment to keep rates dropping long term though, nor will they pass on the savings from buying fuel at a cheaper price either.
I am not confident that the rates will continue to fall long-term if many smaller carriers leave the market. Short-term yes, a down market. The slowing of the economy could keep rates dropping also. Overall, I am nervous that many shippers will try and push the rates down back to pre-pandemic times. If so, what happens if drivers leave the market in droves seeking a better lifestyle and similar money? Will the price of equipment (a used tractor that sold before the pandemic for $34,000-40,000, then $80,000-90,000 the past year, is now going back down again? Again, if a carrier bought trailers expensively, they will not be able to seel the equipment for anywhere near what they paid. Bankruptcies will follow, I fear. I don’t see this situation as perfect. We will see.
The one thing I always keep in mind though, it is the shipper freight and without it the conversation does not exist.
Have a great month. AL