How much capacity did the recession carve out of trucking? In short, a lot, both from the less-than-truckload and truckload sectors. And the decline didn’t stop in 2009.
The LTL industry lost nearly 25 percent of its revenue in 2009 alone, according to data from SJ Consulting Group. Despite a 9.2 percent increase in revenue in 2010 and a 12 percent gain last year, the LTL industry as a whole is 10 percent shy of the $33.7 billion revenue peak it reached in 2006, according to SJ Consulting.
In terms of assets, the Pittsburgh-based transportation research firm estimates the 10 largest LTL carriers reduced their combined terminal count by 18.5 percent from 2007 through 2011. And although no large LTL carrier closed its doors during the recession, the three largest LTL carriers — FedEx Freight, Con-way Freight and YRC Freight — closed the equivalent of a large rival carrier in terms of terminals.
The recession reportedly cut away as much as 20 percent of available truckload capacity. “All the data seems to indicate that 19 to 20 percent of all truckload capacity that existed in 2007 has exited the market,” Werner Enterprises President Derek Leathers said at NASSTRAC’s 2012 Logistics Conference in May. “That means one in five trucks is gone. I don’t believe that number is going to change.”
Truckload capacity hasn’t changed significantly since the end of the recession, according to The Journal of Commerce Truckload Capacity Index.
The index rose 0.3 percentage points in the second quarter to a reading of 84.4, the same as in the fourth quarter of 2011. But the JOC measure of available truckload capacity has ranged between 86.2 and 84.1 since the first quarter of 2009, after plunging 5.4 percentage points from the end of 2008. Overall, the truckload carriers the index tracks are operating at a tractor capacity level more than 15 percent below their peak truck count in the fourth quarter of 2006.
That slight second quarter increase in the index didn’t reflect more equipment entering the market, but lower freight demand, and the JOC capacity index for the third quarter may tick upward again because of softening freight demand. However, it’s unlikely to make a large leap or rise beyond its three-year ceiling of 86.2.
U.S. GDP growth, which slowed from 2 percent in the first quarter of 2012 to 1.3 percent in the second quarter, isn’t expected to pick up much, if any, speed in the third quarter, when an “unintended” spike in inventories curtailed fresh freight demand. And uncertainty surrounding the presidential and congressional elections, the budgetary “fiscal cliff,” Europe’s tattered economy and China’s slowdown cloud the outlook for the holiday shopping and shipping season.
And so the “tenuous equilibrium” continues. In fact, there are signs that truck capacity and demand were neatly balanced by September. The Cass Truckload Linehaul Index, which measures fluctuations in truckload pricing, was flat in September for the third straight month at a reading of 109.5. Truckload rates were up only 0.5 percent from a year earlier, according to Cass Information Systems.
That means truckload capacity is only likely to increase if GDP grows even more slowly or falls into recession, and will decrease as the economy gets stronger.