ACT Research reveals how fast trucking capacity is shrinking

ACT Research’s October research is one of the first comprehensive looks at the trucking market since English Language Proficiency enforcement has been toughened, and impacts to trucking capacity are clear. What isn’t obvious, though, is whether the demand side of the market will show up.

The ACT For-Hire Trucking Index depicts a landscape where for-hire trucking capacity is contracting. According to the report, the Capacity Index increased by 2.1 points month-over-month to 47.5 in September. This tells us that capacity is indeed contracting. Analyst Carter Vieth from ACT Research highlighted a crucial aspect: “A key piece regarding capacity is the 32% reduction in tractor build from H1 to H2 of this year, which notably took tractor build below replacement levels.” This substantial cut in tractor builds is shrinking the overall number of units available in the US market.

In tandem with capacity contractions, the heightened enforcement of ELP standards by the Federal Motor Carrier Safety Administration (FMCSA) is poised to clean up the industry’s driver pool and potentially constrain capacity in a material way. As noted in ACT’s research, 10% of truck drivers might not meet these standards, potentially creating a capacity crunch in the less compliant lower end of the spot market, where many freight brokers cover their shipments. Stricter ELP requirements may cause a significant reshuffling in the labor market, fundamentally impacting the availability of qualified drivers.

While factors that tend to constrain capacity are in the headlines, other macroeconomic variables are blocking a robust rise in freight rates. Volumes present a more complex picture. The Volume Index, as reported by ACT, rose to 55.1 in September—its highest in over a year—indicating a rebound in volumes. Vieth pointed out, “Volumes are tricky to parse in the near-term, with clear risks, but also very clear positives for for-hire happening concurrently.” Consumer spending increases have helped buoy inventory levels without causing overstock, even while sectors such as manufacturing and housing remain sluggish.

Risk to volumes seems more to the downside than the upside: the volatility of volumes persists, with the ACT report indicating potential risks to sustained volume increases. Factors such as slowing real income growth and tariff-induced inflationary pressures pose threats to this growth. Vieth continued, “The good news is that the sustained spending this year has kept inventory from getting bloated, and there hasn’t been a major overstock, reducing the risk of 2022-2023 type destock.”

Amidst these dynamics, one would expect a substantial rise in freight rates due to the contracting capacity. However, the report shows only modest improvements. The Pricing Index managed only a 1.6 point increase to 53.5, with spot market improvements limited to a marginal 1-2% gain. With inflation running around 3%, carriers are not witnessing significant profit growth.

ACT Research underscores that while capacity contraction typically precipitates rate increases, other elements are balancing this effect. “Looking ahead to mid-next year,” Vieth suggested, “as tariffs are worked through, capacity continues to contract, and if the economy continues to grow (even if at a slower rate) would support for-hire demand recovery.” Furthermore, the report intimates that lower interest rates could bolster durable goods demand, thus offering some optimism for future housing market activity.

While the trucking industry is navigating significant regulatory and market challenges resulting in contracting capacity, an array of external factors is tempering the expected upward pressure on rates. There seems to be as much potential for shippers to experience cost increases as for rate hikes to be mitigated by volume volatility and broader economic conditions.