Could Truck Shortages/Delays be Helping Keep Freight Rates Sky High?

It’s no secret that trucking freight is extremely strong as of August 2021. Capacity nationwide simply cannot seem to keep up with demand at the docks. And during a time of extraordinary inflation this is likely contributing to price increases at the shelves across the board.

In a weekly safety meeting at Prime Inc’s Springfield headquarters on Friday the 13th of August (2021) Prime’s Vice President of Sales Steve Wudtke openly acknowledged the company is having difficulty fulfilling its pledged obligation to its customers. Wudtke pointed to COVID-19 as an important variable in causing capacity slow downs, but didn’t have the time to expand on other issues that could be playing a part in this problem. In this and previous weekly meetings he has stated that the amount of freight by far exceeds the capacity Prime is able to provide.

Prime Inc, the nation’s largest refrigerated trucking fleet, isn’t alone in experiencing strong freight demand. US Express CEO Eric Fuller recently did an interview with Yahoo Finance discussing freight markets and essentially shared the same news. Granted, the article is wrapped in the typical “driver shortage” proclamations, but reading between the lines you can see that freight demand continues to surge. And in turn rates along with it.

But unlike Wudtke, Fuller hit on the tractor shortage in a recent earnings call. “While the freight market has been robust, our financial results are being impacted by a lower overall tractor count, tight driver market, and the duplicative cost structure required to build and develop Variant while reducing underperforming portions of our legacy OTR fleet. Exiting the second quarter, we believe we have hit the inflection point where Variant’s fleet has achieved the scale to grow at a pace faster than the expected remaining contraction of our legacy OTR fleet, and we believe we can grow overall tractor count sequentially. A larger fleet comprised of a higher percentage of more profitable Variant tractors is consistent with our long-term vision of revenue and margin expansion.”

It used to be that headlines and CEO’s primarily focused on the driver shortage narrative. Now, however, that headline almost always includes talk of a tractor shortage. The two combined are making for a powerful influencer in the freight rate realm. Few trucks available equals higher rates. Right now solving the driver shortage problem doesn’t in any way mean more trucks/capacity available.

How bad is it? Well, PACCAR (Peterbilt and Kenworth) is no longer taking truck orders for the remainder of 2021. Let me repeat that in a different way. Peterbilt and Kenworth are sold out and no longer offering new trucks for order in 2021. That’s a mind boggling reality to grasp. And it’s a result of the fact that nearly 7,000 trucks have been “red tagged” sitting incomplete while waiting for parts. The company says it’s backlogged by up to 30% for year to date and simply isn’t willing to continue seeing that number climb.

Prime Inc’s Springfield headquarters was buzzing with new student drivers. Classes are beginning to expand and the energy is getting back to pre-pandemic levels. But what good is that if there are no trucks to place these new drivers in? And how can companies like Prime Inc meet the record demand of customers if it can’t increase the number of trucks on the road once drivers are ready to take them?

Ultimately this is great for existing drivers with trucks. Rates will remain high for the foreseeable future because we’re more valuable than ever. We’re needed and we have a truck. But this is bad for consumers because these costs are being passed all the way down to the shelves in stores.

It will be interesting to see where all of this goes.

-Eric Odom

DISCLAIMER: Eric Odom is an independent contractor pulling freight for Prime Inc. is independently owned and operated. It does not speak for Prime Inc, nor on behalf of Prime Inc.