Truckload operating authorities declining 12% faster this winter
Since the start of November, net active truckload operating authorities have dropped by 9,000 — an approximately 12% increase over the same period last year, according to Carrier Details’ analysis of Federal Motor Carrier Safety Administration data.
The operating authorities measured here are Motor Carrier of Property authorizations. These are specific to for-hire truckload companies, which can represent any number of trucks.
Over 92% of the operating authorities represent carriers that have fewer than 20 trucks in their fleet. So one authority can be a single truck or 5,000 trucks — the latter being in the gross minority. Point being, this data is heavily skewed toward small operators.
Measuring available capacity is one of the most challenging things to do in the trucking industry due to the aforementioned extreme fragmentation. While we can measure the total number of operators and their fleet sizes, it does not mean they are available to service the existing freight demand.
Some carriers may specialize in certain commodities like produce or limit themselves to a single region. They also may lack the visibility to know where all the available freight is. Freight demand itself is very dynamic and prone to extreme seasonal and economic cycle fluctuations.
The best data points to view when trying to see capacity’s effectiveness in the U.S. are tender rejection and spot rate averages – the former being more precise than the latter.
Looking at the past five-year history of the national tender rejection rate (OTRI) and dry van spot rate (NTI), both are low compared to the pandemic years of 2020-21. There does appear to be a slight upward trend that started in the spring of last year, however. This tells us that capacity is slowly becoming less available, though still abundant.
The purpose of looking at the net changes in authorities data is to see the direction and rate of capacity growth or deterioration. The current level of deterioration is historically fast, meaning the truckload market has the increasing potential to flip to a much tighter environment without much notice.
Looking at a chart of total operating authorities (supply) and the national tender volume index (demand), the demand side moves much more quickly and is more volatile than the supply side. This is due to the length of time the decision and equipment acquisition/sale process is for the supply side of the market.
If demand remains somewhat stable, the supply could fall right through it due to the momentum and opacity of the market.
The biggest question at the moment is, when will this happen? It is nearly impossible to predict with any precision due to carrier positioning and network incongruencies with demand, although it does appear increasingly likely in the next 12 months. From a shipping perspective, it would be ill-advised not to begin preparation. Even if the market does not flip this year, it is wise to prepare.
Some of the strategies that hedge against freight market volatility include:
Carrier/route guide diversification.
Private fleet growth.
Increasing dedicated service.
Dynamic pricing that moves with the market (Cost plus/Index-linked contracts).
All of these strategies may cost more in the short term but hedge against dramatic, budget-destroying events.