State of Freight: Fuller highlights connections between housing market and trucking

ATLANTA – Although the June State of Freight webinar occurred just a few weeks after May’s edition, there were two key differences.

One was that FreightWaves CEO Craig Fuller was back in his familiar position with FreightWaves Director of Market Intelligence Zach Strickland. Second, it took place in front of a live audience at the Future of Supply Chain conference at the Georgia International Convention Center here.

But even given the short interim between sessions, the live June edition found a few new things to talk about, including the possibility that the nation’s housing crisis was contributing to an overhang in trucking capacity. Here are five takeaways from the Tuesday session.

Here are five takeaways from the Tuesday session.

Links between homelessness and trucking

FreightWaves CEO Craig Fuller said he recently participated in a roundtable discussion with representatives from the Federal Reserve in FreightWaves’ home city of Chattanooga, Tennessee, and the subject of the national housing crisis came up. “One of the things we talked about was that there is a portion of the driver population that no longer has a permanent home,” Fuller said. “They’re actually living day-to-day in their cab.”

The financial advantage of such a living arrangement is not having a housing payment, though the accommodations are not quite on the level of people who dodge paying rent or a mortgage by cruising full time.

The lack of affordable housing “is probably keeping some of these carriers on the road who otherwise would have left the industry,” said Fuller.

At the same time, a slowdown in housing starts means that construction jobs are less likely to lure some drivers out of the cab, helping to maintain capacity.

The role of brokers and volatility

Fuller cited statistics that showed how the largest carriers over the years have lost market share to brokers. “Market share is fragmenting, not consolidating,” which will increase volatility, he said.

Even if a shipper wants to cut down the number of companies in a routing guide to a smaller number of core carriers, Fuller said, brokers can step in and widen the circle of potential carriers. “And then the shipper needs incremental capacity, they can call up the broker and that is who is supplying the small carrier. That is why they’re surviving.”

The end result, Fuller said, is that the growth in brokers’ market share is slowing what a traditional model might have projected would be a loss of capacity as the weak market drags on. “The downside of the market may go on longer than these up cycles, and that might be a permanent feature,” the FreightWaves CEO said.

Big bust might be coming

Fuller said he expects a significant bankruptcy in trucking. He did not name any potential candidates, but he said “someone I trust” told him about a company with a little less than 1,000 trucks being in “significant financial trouble.” Even if that company survives, Fuller said, “there will likely be a big bankruptcy by the end of the year because what’s happening is that these balance sheets have just been so destroyed.” Add to that higher interest rates and it’s possible lenders aren’t going to rescue a company that’s in trouble.

OTRI still pointing higher

FreightWaves Director of Market Intelligence Zach Strickland reiterated that the Outbound Tender Rejection Index in SONAR remains the best indicator of the balance between trucking supply and demand. With the index’s recent gains, Strickland said the OTRI is about where it was in early June 2019, which marked a turning point for the market. “I think this is demonstrating that the market is responding to more seasonal norms,” he added, noting that the second half of May and the first part of June “is really a pretty good time for the freight market.”

Fuller said a brief upturn in the OTRI during Roadcheck Week marked the first time in a long time that the freight market reacted along historic norms. Many drivers stay off the road during Roadcheck Week. “Before, we would have these market events, and they just didn’t move the market,” Fuller said. “This time, a market event actually did see some reaction and I think that suggests that the market is moving.”

Higher rates just might be an inflation reaction

Yes, rates are rising, based on the National Truckload Index in SONAR. The national average rate was $1.58 per mile on May 8 and was $1.71/mile on Monday.

But costs are higher too. “With the cost structure, the carriers have a higher floor, arguably a 30% increase,” Fuller said. Driver wages are a key part of that, as the strong market of 2020 and into 2021 led to a slew of major carriers announcing increases in driver wages that are still in place.

Equipment costs are way up too,” he said. (Fuel costs are not in the NTI, but might be higher depending on the time point comparison). For companies that lease their equipment, “they’re in a situation where they’re paying much higher capital expenditures just to stay in business,” Fuller said.