Trucking Capacity Tightness: Why It’s Here To Stay

Speaker 1 [0:06] All right. All right, for today’s Donor Update, I want to talk about a couple of things. First, I want to talk about spot rates and diesel prices at the pump diverging a little bit. This is a really interesting and important thing because as we talked about earlier in the year, as spot rates were increasing, a lot of people attributed those increased spot rates to increased fuel and diesel price. Craig and I have disagreed with that and attributed spot rates increasing to lack of capacity, and rather than just increased fuel rates. Really, pricing is supply and demand based. Irregular route one-way pricing and spot rates are not based on underlying costs. So my thesis has always been that carriers are able to recover the rising fuel costs and spot rates right now because capacity has remained tight, not necessarily because they’re, um, trying to recover the cost, right? So even if diesel prices fall, I posited that spot rates would continue to remain strong, and our data is showing this but sort of in the opposite way. So spot rates versus fuel, you can see, are heading a bit in different directions this week. So NTI is sitting at $3.51 a mile. It is climbing back up off of a mid to late June low near $4.90. But DTS, so that’s the actual diesel price at truck stops, is at $3.48 a gallon, and it’s down from a July high near $3.80. But you can see just this last week when you look at the graphic, they are going a bit of different directions. Spot rates are falling very, very, very minimally, but that diesel price at the pump is going up. Now I want to talk a little bit about the overall market when it, you know, comes to a lack of available capacity. Rejections are cooling, but they still are elevated. We can see in our STRI, Sonar Truckload Rejection Index, remains at 14.36%. So it’s down slightly this week, but still well above the 6-month average, which is like 10.9%, but flatbed remains to be the hottest and most volatile mode. We’re back up to 23% tender rejections, which is down from the incredible numbers we saw in June and early July where those tender rejections were in the 40% range. Reefer is still remaining relatively elevated as well, 19.46%. So— Yeah. Easing a bit when it was right at 20%, but still incredibly high at near 20%, or, you know, 1 in 5 loads being rejected on reefer. Van overall is the most moderate, but still nearly 50% above where we were a year ago. So every mode is cooling a bit from its summer peak, but it’s all still tight. We’re seeing a lack of available capacity, so we’re certainly not back to loose. The second thing I want to talk about is really earnings as a whole. We have seen some really great earnings come out so far this quarter. We saw Knight-Swift, and we talked about it earlier this year, where they talked about a rapid tightening in supply-driven dynamics with spot rates going up significantly and exceeding normal seasonality and tender rejections reaching levels that they hadn’t seen since 2021. This is really, again, all still driven by a lack of available capacity in the market. We haven’t seen a strong increase in demand, but we are seeing capacity leave the market. Werner’s earnings, I think, were really perfectly stated this. They talked about directly regulatory pressures removing shadow capacity as ELD providers exit the market alongside ongoing driver and CDL school removals. So impacting capacity and the quality of driver availability. They both referenced really strong rates. Knight-Swift said strategic pricing recovery accelerated in June as recent bids took off and expected more to come in July. Their truckload segment was able to adjust their operating income significantly higher. It was up 69% year over year. And we’re just seeing across the whole, you know, all of the earnings, the improvement in revenue per truck per week and overall rates allowing them to continue to drive better utilization. We’re not seeing trucks necessarily being added to any of these large fleets. They’re just operating better with what they have and at better rates. Again, we’re not really seeing increasing demand. And this showed in all of those earnings that we’re talking about. We’ll talk more in detail about the rest of the earnings today, about Werner and UPS and Landstar and all of the other earnings that have come out, Old Dominion. But the growth carriers are seeing is really coming from mode shift and share shift, not a demand boom. We saw intermodal grow with J.B. Hunt significantly. We’ve seen strong intermodal earnings really across the board with all the earnings that have come out. Um, I think the other interesting point that I, that I want to call out and that Craig and I have talked about over the last couple of weeks is that with all of the new liability issues and judgments coming out, shippers are looking to well-established asset-based carriers to minimize their risk in liability and, and fraud and other things. So, um, they’re also looking to dedicated. So I expect to see carriers who have a large dedicated presence continue to do really well as we go through the rest of this year and next year. Derek Leathers said that the company’s organic dedicated business is growing. Obviously, they acquired First Fleet, which drove part of the margin improvement and certainly added, you know, the truck count. But revenue for both Werner and J.B. Hunt improved in dedicated as well as in their truckload segments. But the other thing that they’re, they’re both citing and that we’re continuing to see is driver recruiting challenges coming from lack of available capacity, a tight market which gives drivers more options, and then also regulatory enforcement. So, um, really this regulatory story can’t just be background noise. It is truly changing our industry. It’s showing up in the availability, you know, the available capacity, but also in our ability to recruit and retrain and retain drivers in our industry. So really all of the things that we’ve been talking about over the last couple of weeks on the show, I was pleasantly surprised to really be reflected in the earnings that we’ll be talking about as well. Carriers are describing their own market in the same terms we’ve been using. as we’ve been going through talking about the market as a whole in the show thus far. So the main points again, demand is remaining relatively stable. Rejections are remaining elevated, even if they’ve cooled a bit. This is July, and we’ll see that in August. And then hopefully we’ll see normal seasonality return and see things tightening as we get into fall. We’re continuing to see capacity exit the market and additional barriers to entry added for capacity being added back in. So I think we are in it for the long haul as far as capacity being tight for quite a while.