On the Rise: Freight Demand and Concerns

Strong Tie Insurance March 11, 2021 Our Blog

After an unusual year in the industry, many people are left wondering about the economic forecasts for trucking, commercial truck insurance, and the freight industry in general.

Freight demand is currently high, but there are also some issues the industry has to face. Here are some of the current trends and concerns facing the trucking industry.

What is Freight Demand?

Freight demand describes the demand for transportation of goods from warehouses to stores and points of sale. Demand naturally fluctuates over time. Some experts believe that the transportation industry cycles through four phases over time, normally over a period of about four years.

The cycle starts with early cycle balance recovery, where demand rises, supply decreases, and prices rise as a result. The next phase is undersupply, where carriers begin to meet that high demand, invest in new commercial vehicle fleets, and driver wages rise. During this phase, the industry’s capacity increases.

After undersupply comes late cycle balance recovery, which is almost the opposite of the early stage version. During this phase, demand decreases, supply increases, and prices decline. The oversupply phase comes about next, and truck orders may be cancelled, and prices reach their lowest point.

Types of Freight

Trucking is just one type of freight. These other freight transportation methods can impact trucking as an industry.

There’s also intermodal railway freight, which involves both railways and another type of freight, and is cheaper. There’s air freight, which is expensive but the fastest option available. Ocean freight is the cheapest international option, but it tends to be slower.

Trucking is impacted by other parts of the freight industry, and ocean freight has faced some issues recently. There have been notable delays in shipping and shortages of shipping containers.

Ports have been full of ships that are slow to unload, and as cargo is unloaded, truck and intermodal transport are in high demand to take goods to their destinations.

Current Demand for Trucking Services

Experts seem to agree that currently, we’re at a point of high demand for trucking services, and this demand may continue into 2022.

What is driving this demand? There are multiple contributing factors. Retail stock was inconsistent throughout 2020, as even lay people noticed, and stores are trying to restock to satisfactory levels. As other industries recover, including manufacturing, there’s more demand for transportation of goods.

However, despite this demand, both truck drivers and trucks themselves are in limited supply. Fewer employees are joining the industry, so there’s less ability to transport goods.

There’s also a shortage of semiconductors necessary to truck manufacturing, and that shortage is impacting a whole range of industries, from electronics to appliances. The shortage is limiting production of new trucks.

Because of these shortages, the inconsistency between supply and demand will likely continue for months.

Orders for new trucks are expected to hover around 40,000, which is about 3.4% growth. Expert John Woodcock argues that though drivers are slow to return to the industry, the higher wages should attract more of them.

He also points out that carriers are investing in new trucks, and that new equipment is another appealing feature to potential truck drivers. Like most economists, he has an optimistic view of how the industry will recover over the next year.

Truck Driver Shortages

Why are there not enough truck drivers to meet demand? Unsurprisingly, the answer is related to the pandemic.

Even before the pandemic started, the trucking industry was facing a shortage of drivers by 60,000. Since then, many more drivers have retired or left the industry. A majority of drivers are over 45 years old, and 23% are over 55, so many are nearing retirement age.

There also hasn’t been much of an opportunity for new drivers to replace them, since trucking schools have been closed and job postings for the position decreased 38% between 2019 and 2020.

The Federal Motor Carrier Safety Administration has also debuted a new Drug and Alcohol Clearinghouse database. The database tracks violations of drug and alcohol programs from people holding commercial drivers licenses, and could disqualify some from working as drivers.

Freight Concerns: Carrier Closures 

No industry has escaped unscathed from the pandemic, the trucking industry included. In 2020, 3,140 trucking businesses closed down. That’s more than double the number of businesses that closed in 2019. The majority of these businesses closed early in the pandemic, during a time of economic uncertainty.

Demand for trucking services dropped, along with spot rates. Smaller companies were affected more than others, likely because they rely on spot rates more than others.

However, after these closures, spot rates improved, likely because there were fewer trucks available for transporting goods. Higher demand and higher rates should pave the way for trucking companies to recover and even grow.

Some industry professions have suggested that higher insurance premiums may contribute to continued closures, however. It’s more important than ever to find reliable, affordable insurance for your commercial vehicle.

Freight Growth in 2021

COVID-19 has had a huge impact on all industries, and freight is no exception. Experts are optimistic, and rates and demand are both high at the moment. The market is currently experiencing some tension, because supply isn’t rising to meet demand.

However, new truck orders could help increase the capacity of the market in the second half of the year, after the semiconductor shortage clears up. New drivers may enter the workforce as more Americans get vaccinated and driving schools open up. Both of these would help bring balance and stability to the market.

Thanks to stimulus checks and vaccines, many economists are predicting a thriving summer for the trucking industry.

As trucking continues to be a vital industry in America, it’s important to stay up to date with your insurance policy. Find a provider that will work with you and make submitting a truck insurance claim easy.

Strong Tie Insurance provides affordable commercial insurance for trucks, and we have a wide range of policies available. Contact us today to get a quote and learn more about our insurance plans.