The Trucking Industry’s Boom and Bust Cycle
Perhaps the most daunting problem facing the trucking industry is its long history of boom-and-bust cycles.
“In the current trucking market, the volume of available freight is significantly higher than available capacity,” explains Matt Patterson, senior transportation manager for Sunrise Logistics, Inc., based in Ephrata, PA. “Currently, there’s a driver shortage, and most trucking companies are looking for more drivers, giving both employee drivers and independent contractors an enormous number of opportunities.”
“There isn’t anything we’re hauling with published rates,” observes Jeff Jerue, president of John J. Jerue Truck Broker, Inc., based in Lakeland, FL. “It used to be $3,000 to $3,200 a load; now you can’t find someone to haul it for $5,000 or $6,000. The law of supply and demand is a great thing. People are going to get back into the trucking business.”
Jerue foresees resulting pay increases down the road. “The cost of transportation in the United States over the next five years will double.”
How long will this trend last? “The market is very volatile,” notes Aaron Terrazas, director of economic research for Convoy, Inc. “There’s a boom to bust every year and a half. That volatility isn’t anything that anyone in the industry likes—all are wondering how to make it more stable.”
Terrazas cites three reasons for the volatility. First, he says demand is unstable. The second reason has to do with what he characterizes as the “supply of speed response” and overinvesting in new capacities during favorable times.
After all, it takes a certain amount of time to manufacture a truck; a company may order one when the need is rising, only to get it when the market is down.
The third, and perhaps most problematic reason has to do with certain “unique features of the freight market,” Terrazas says. “Most shippers use fragile long-term contracts. When those contracts break down, people are scrambling to get their loads filled.”
How can this be? After all, one common definition of contract is a promise that will be enforced by law. But Terrazas says penalties for failing to honor a contract in the trucking industry are “not very enforceable—it’s based on relationships; it’s based on trust.”
Who is more likely to break a contract? “Historically, it’s both,” points out Terrazas. “Shippers tend to prioritize who can service freight at best cost; carriers look for the best price they can get.”
Trucking has long been a freewheeling, rough-and-tumble industry. It is also the bloodstream of American commerce, and certain to remain as resilient.