Although some recent indicators portray an economy whose expansion may be cooling down, the trucking industry is now experiencing tight capacity from driver shortages and mounting backlogs for new Class 8 truck orders. According to Chris Brady, president of Commercial Motor Vehicle Consulting, the momentum of the first half of the year should sustain the economy throughout the second half.
Class 8 truck builds are expected to step-up for the second half of the year after several OEM's added new shifts to plants to boost output.
Truck OEMs have recently added hundreds of new manufacturing jobs in an effort to ramp up production to keep up with rising backorders. For example, Freightliner announced in June that it is adding a third shift to its Cleveland plant, creating nearly 600 new jobs.
Additionally, Schneider National launched a rigorous driver recruitment campaign in late June to hire 150 drivers in 30 days. Combined with the increase in manufacturing jobs, this move underscores the industry's sustained boom.
"Year-over-year comparisons remain good and robust growth is expected to continue for the industry," said ATA chief economist Bob Costello, commenting on tonnage. "The driver situation is currently limiting capacity growth."
When carriers place new truck orders and add more drivers they are betting that freight tonnage will sustain its high rate in the coming months- especially as deliveries get delayed as a result of mounting backorders, Brady explained. "When the backlog expands now, carriers have to plan the freight requirements in the future. For example, if it takes six months for a truck delivery and you want to expand capacity, you have to anticipate that freight requirements will sustain its high six months down the road."
Although there are some pricing advantages for carriers to keep capacity tight, tonnage is so high right now that carriers are experiencing pressure to expand.
"It's good that there's pricing pressure over the shipper- it gives carriers power over the shipper base," Brady said. "The problem is if you don't have enough capacity to handle the shipper, they will go somewhere else.
For example, if Schneider delivers for Wal-Mart and Wal-Mart's freight requirements expand 4% and Schneider's capacity expands 3%, Wal-Mart will go elsewhere for that remaining 1%."
Separately, the American Trucking Associations reported that freight tonnage dropped 1.4% in May, its second drop in nine months. May's figure was the second highest on record, with the highest in April.
"I believe the economic expansion is still very solid and so is the trucking industry," ATA's Costello said. Brady concurs. "The slowdown you're seeing [in the economy] is coming off of very strong numbers. The numbers now imply very strong underlying growth."