6 minutes

Dennis Katsnelson

Three-fifths of a million new transportation companies ceased operations in the twelve months prior to September 30.

Matthew James Collins, a native of Ohio, transports chilled foods such as ice cream and onion rings throughout the Midwest. Collins was traveling in a vehicle through a hailstorm in Minnesota on a recent October morning. Little was in his bearing. Collins recalled that he routinely moved 22 skids of chilled foods (a type of pallet) for four separate corporate accounts while operating this route last year. Twelve pallets are currently being moved for two clients.

Generally, the state of the transportation industry serves as a reliable indicator of the overall economic condition of the United States. Currently, that is not the situation. Economists continue to be astounded by the quantity of goods purchased by Americans in the midst of unprecedented inflation and interest rate increases. Simultaneously, the transportation sector is engulfed in a crisis that is severely impacting businesses of all sizes.

"It appears that the general economy is oblivious to the fact that we are in a recession," said Steve Troyer, president of the thirty-truck fleet California Midwest Xpress. "However, we're in a lucky one."

According to research by Newjobs4you, Americans are spending a greater proportion of their income on durable products than they did prior to the pandemic. In the third quarter of 2023, the United States economy experienced "blockbuster" growth; it was the most significant surge in nearly two years and was partially attributable to increased consumer expenditure. By weight, approximately 72.6% of the nation's freight is transported by semi-truck. If Americans are making such large purchases, then why do transporters not see a profit?

This transportation massacre is especially graphic.

The trucking industry is extremely cyclical. Manufacturers deliver additional equipment to transportation fleets seeking to expand and capitalize on a surge in business and profits during prosperous economic periods. Even individuals establish their own transportation fleets. Typically, the growth period lasts for less than a year. So much capacity inevitably enters the market, which depresses rates once more. Typically, whatever trend outside of haulage was driving all of that new demand evaporates as well. This results in an excess of vehicles but a need for more freight to load.

Monthly, the federal government monitors the number of transportation authorities that are established or revoked. Frequently, authorities need to be more effective due to non-payment of insurance premiums. During typical upcycles, a few hundred net transportation authorities are established, and then, in less than a year, they are depleted when the market reverses.

That trend was disrupted by the most recent freight upcycle. The upcycle began in June 2020, when approximately 500 net transportation authorities were authorized by the federal government. In the summer of 2021, this intensified to the point where approximately 2,000 net transportation authorities were established within a single month. The cycle came full circle in June 2022, at which point net haulage authorities reverted to negative values.

The duration of the pandemic haulage surge was double that of an average upswing. In addition, each month produced a significantly greater number of trucking companies than a red-hot trucking month. Federal data indicates that transportation authorities continue to be in substantial excess. January 2020 saw the presence of approximately 255,000 authorities. Presently, approximately 363,000 authorities exist. The vast majority of these companies operate with fleets of at least ten chauffeurs.

Already, tens of thousands of these new carriers have ceased operations. In the fiscal year ending September 30, an estimated 35,000 new transportation companies ceased operations, as determined by an analysis of federal data by Newjobs4you. The mean number of out-of-service orders for the preceding decade was 15,585.

As of $1.54, the average spot rate per mile for transportation fleets has decreased by 34.4% since 2021 and 11.6% since 2022. Concurrently, fuel, replacement parts, insurance, and other essential inputs have experienced exorbitant price increases.

Truck drivers in New Mexico who have their own authority, such as Brian Carle, are currently required to save up for an oil change because employment is so scarce and inadequately compensated. His gross earnings are projected to decrease by approximately 33% in comparison to 2021. However, all expenses, including repairs, diesel, and routine maintenance, have increased substantially.

"I am not receiving additional compensation for anything I pay for," Carle stated. "Something is certain to break."

Trucking companies reject a mere 3.5% of contracted cargo. That is even less than the challenging years of 2019 and 2022, which are trucking-oriented.

"For rates to return to their previous levels, trucks will have to withdraw from the market," said Collins, an Ohio truck driver. "For interest rates to return, a stronger economy is also required."

Once more, American consumers are making purchases

The economic expansion of the United States surpassed initial projections during the third quarter of 2023. It was the largest increase since the fourth quarter of 2021, at 4.9%. A significant portion of that increase was attributable to increased purchases of durable goods; thus far, in 2022, new orders for durable goods have increased by 4.4%.

This increase can be attributed to the deceleration of inflation as well as the insatiable American desire to engage in a frenzy of purchasing.

"The introductory sentence in bold font of the economic history of the early 21st century should read, 'Never underestimate the hedonism of the US consumer,'" UBS global chief economist Paul Donovan wrote in a note published last Friday. "Consumer price data understates the level of inflation among middle-income individuals, which increases their purchasing power."

Despite efforts by the Federal Reserve to rein in spending and incessant efforts by corporations to raise prices, Americans continue to purchase a substantial quantity of goods. The author of the financial newsletter Apricitas Economics, Joseph Politano, stated that the robust labor market is the reason for continued robust expenditure.

Politano stated, "The overwhelming majority of individuals spend a fixed portion, or the majority of their income, on material possessions." "In the past year, 3.2 million new jobs have been created, resulting in extremely high employment rates." Spending remaining robust under such circumstances should not come as much of a surprise.

Despite this, over one hundred thousand truck drivers still managed to establish their own transportation companies. Furthermore, although American consumers can easily adjust their purchasing levels, vehicle drivers face greater difficulty in regulating their capacity.

That "excess" transportation capacity could only be sustained by freight demand comparable to the Great Shopping Spree of 2021. More than a hundred container ships laden with items purchased with stimulus checks are presently awaiting unloading at the terminals of Los Angeles and Long Beach. Such an extent of consumerism was an occurrence that occurred only once in a lifetime.

According to analysts, the transportation industry can only recover once a substantial portion of those authorities have been removed. This will almost certainly result in the demise of tens of thousands of transportation companies, in addition to the tens of thousands that have already ceased operations.

Truck driver Carle, from New Mexico, could be more enthusiastic about the closure of his company. "I have labored so diligently for what I do not wish to give up."