When will the next wave of trucking capacity hit the market?

Like many industries, trucking companies have not fully recovered their employment levels to where they were when the pandemic began in earnest in March of 2020. In the meantime, freight volumes have expanded beyond where they were when this began. The result has been unprecedented growth in spot market rates in the second half of the 2020. 

With so much uncertainty around what was occurring and how long the demand would last, carriers were hesitant to invest in growth, having been hit hard by low volumes in April and burned by an oversupplied 2019 market that resulted largely from overinvestment in 2018.

Once again, we saw a familiar pattern emerge in late 2020 as orders for new Class 8 trucks hit 47,034 units in November and preliminary reports for December have orders over 50,000, according to ACT Research. These numbers resemble those last seen in July and August of 2018 as spot rates hit multiyear highs.

These two situations are not completely congruent. Carriers were motivated to invest in depreciating assets thanks in large part to the tax incentive put in place by the Trump administration. One of the major reasons for the surge of freight in 2017-18, which led to their confidence in an extended period of demand. 

Orders averaged 32,000 units for the 12-month period starting in October of 2017, compared to 14,600 for the previous 12-month period. Looking at the employment figures we can see this was a rapid expansionary period for trucking that bled into early 2019. 

The recent surge of orders signals a wave of capacity coming online in the second half of 2021, but some of that capacity will be replacement orders for older equipment and replenishment from a slew of exits in 2019. 

Ordering trucks will be easier than seating them this year as driver recruitment challenges remain in place. Driver schools have been operating well below capacity and the Drug and Alcohol Clearinghouse has removed thousands of drivers from the pool since its inception last year. 

Most forecasts show demand staying elevated for the first half of 2021, which means these orders will not have an impact in the near-term. Many questions still remain around what demand looks like after the pandemic begins to wane. These orders suggest carriers are much more optimistic about the long-term than they were earlier in the year.

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The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

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