How did the freight market look at the end of 2021 compared to the end of 2020? Used truck prices almost doubled; dry van, reefer and flatbed rates rose an average of $0.51/mile; contract rates were up $0.36/mile, spot market volumes rose 80%, new truck order cancellations escalated; supply chain disruptions persisted; residential housing construction surged, and the latest COVID-19 variant threatened to close borders and add a new round of restrictions, curtailing economic activity.
And we thought 2020 was a crazy year!
To top it all off, we still have over around 1m TEU waiting to offload – the equivalent to a month’s worth of imports in the Ports of Los Angeles and Long Beach combined.
At a time when the industry is still adding capacity – albeit at a declining pace – we’re now heading into the first month on the shipping calendar when spot rates typically plunge as demand softens. Last year, spot rates dropped almost $0.25/mile by the end of January, but that was from a high of $2.25/mile (excluding fuel surcharges) at the start of 2021. This year, the freight market is starting out the first week of 2022 around $0.41/mile higher than last year.
According to the FMCSA, new authorizations for private and for-hire carriers combined are up 18.3% y/y, with the majority of new entrants in the owner-operator category. Total drivers are up for smaller fleets but down for larger fleets, highlighting the shift in freight mix (more shorter-haul demand) and labor shortages plaguing the longer-haul sector. Driver counts in the owner-operator category are up 27% y/y while the number of drivers in fleets exceeding 5,000 drivers has dropped 4% y/y. Larger fleets, major buyers of new trucks, have also found it difficult to add new capacity, as truck manufacturers ramp up new truck orders due to ongoing semiconductor chip and other parts shortages.
DAT has argued for some time now that there isn’t a driver shortage anywhere near the level being portrayed by the media and some industry associations – it’s far more nuanced than that. Labor shortages at shippers and receivers throughout the pandemic have meant carriers are spending more time waiting to load and unload, creating a throughput or velocity problem, not a driver shortage problem. It may well turn out that we’ve had sufficient trucks all along, but they were just moving through the freight network at a much slower velocity than we’d normally expect to see.
So, what about demand then?
If we do have a velocity problem and already have sufficient capacity based on the additional 103,000 new trucking companies granted an authorization by the DOT in the last year, any downward shift in demand could have a long-lasting ripple effect.
Most reliable industry data point to truckload demand being flat to slightly up year-over-year. The latest manufacturing data from the Federal Reserve indicates a strong start to 2022. The manufacturing output index for November reached its highest level since January 2019 (up 0.7% m/m to 100.6) following the 1.4% m/m increase in October.
Considering the manufacturing sector accounts for 12% of the U.S. economy and around 58.6% of ton-miles in the for-hire truckload sector, this is indeed good news. But as we experienced with last February’s Polar Vortex event, it won’t take much to throw the market into chaos again and derail our economic recovery. The rapid spread of the Omicron virus is threatening to do just that as we start 2022.