The freight recession has turned on its heel as federal regulations continue to push truck capacity out of the market, but the uncertainty that still hangs in the air around the economy at large begs the question of whether the recovery is sustainable.
Transportation industry executives at Trimble’s annual Insight conference this week discussed the industry trends that are reshaping the freight market in what one called a “permanent shift” and offered insight into what the future of freight could look like.
A structural change
Founder and CEO of FreightWaves Craig Fuller said technology and AI are part of the recovery story, but the rise in rates is mostly a product of the federal trucking regulations that are also driving a structural change in the freight industry.
The industry has suffered from a safety, security and economic crisis, Fuller said. He attributed that in part to lobbyist groups, including the American Trucking Associations, that pushed for deregulation to lower the barriers of entry and remedy the driver shortage.
“I think if you follow the money, the largest participants in the market — the largest motor carriers and the associations — have sort of woken up to this … crisis, and so I think we're going to have persistent regulatory oversight and change, and that is going to change the entire trajectory of this market,” Fuller said.
He said the federal government is leaning into this in ways the industry hasn’t seen in years, and he believes it will result in a tighter, more secure market, permanently.
Rising costs sink boats trucks
Tighter capacity will keep rates higher for longer, said Lee Klaskow, Bloomberg senior analyst of transportation and logistics.
Alex Formoso, executive vice president of supply chain at Polyglass USA, said his company is already experiencing the struggles associated with that tighter capacity: trouble finding trucks to carry their manufactured goods and “skyrocketed” costs that have been difficult to pass on to the customer.
Klaskow highlighted the financial burden on the industry.
That included inflation and interest rates, which he said the Federal Reserve is expected to hike again before year end, cutting into consumers’ ability to spend on things that go on trucks.
Instead, he noted that freight demand has been kept afloat by construction of data centers, the destiny of which hangs in the balance. Fuller said if the next administration places a moratorium on data centers at the behest of nimbyists (local residents who oppose them), it will “kill the freight market.”
“That’s holding up the economy right now,” he added. “That would absolutely create a different economy.”
Back to the current economy, Klaskow also pointed to higher prices at the pump for both consumers and carriers as a result of geopolitical tensions.
Additionally, the rising cost of equipment with the new EPA compliant laws, increased insurance premiums because of the Montgomery v. Caribe case and the mounting costs associated with recruiting and retaining drivers are weighing on freight businesses, he said.
“That's definitely a headwind that carriers are going to have to figure out, and it's good that they have the tailwind of a better rate environment behind them to try to mitigate those additional costs,” Klaskow said. “If truckers are expected to generate a decent ROI, rates have to keep on going up.”
But first, carriers have to find truckers.
The capacity crunch
The driver shortage is back. Though, Fuller said he doesn’t like to call it that. He prefers capacity shortage.
Immigration, he said, has been the primary source of new truck drivers over the last two decades, but with the new regulations in place, including non-domiciled CDL and English language proficiency, that reduces capacity.
“That means that we have this environment where it's going to be harder to add truck drivers into the industry,” Fuller said. “I'm sure folks in this room would attest to how hard it is to find truck drivers.”
Formoso added that he thinks this will accelerate the demand for autonomous vehicles.
In the meantime, he said his company is investing in AI to produce measurable operational value today.
“It's allowing us to make decisions a lot quicker. We're able to do procurement in real time and have multiple carriers bid at the same time for our loads. We also are able to put prices out there for what we're willing to pay for those lanes,” Formoso said. “The system was learning what our patterns were and then putting it out by itself. So it's allowing us to be more efficient tremendously from the AI side.”
He said the company has more AI coming forward for back-office processes that will enable it to cover more lanes without increasing its labor force.
Fuller added that shippers are now screening who their brokers are buying capacity from, which is elevating the price for brokerage companies. He said the only way brokers are going to increase their profits is by increasing volume.
“AI is a way to help them optimize that solution,” Fuller said.
