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January 7 2019

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Page 93 of 147

Surface Transportation 2019 ANNUAL REVIEW & OUTLOOK 92 The Journal of Commerce | Januar y 7 2019 ON US HIGHWAYS, the mother of all trucking capacity crises reached its peak in 2018. That doesn't mean trucks and trailers will fall on shippers this year like manna from heaven, but the chaos of 2018 may be replaced by a more typical, seasonal calm in early 2019, especially if imports from China drop sharply in January following a rush to beat the imposition of tariffs on $200 billion in Chinese goods that have now been postponed. Trucking contract rates are still expected to climb, but they're not far from reaching their peak, accord- ing to multiple sources. The question is how long they will remain ele- vated. The answer may be until the US economy slows significantly or contracts in a recession. Heightened economic activity has been the main factor squeezing capacity since 2017. That keeps pressure on ship- pers to work closely with trucking partners to find efficiencies that can create capacity (see story, p. 99), and find ways to unlock hidden capacity that exists in the marketplace, largely in small, one- to six-truck businesses that depend on the spot truckload market, which isn't a friendly environment for large, high-volume freight shippers. The problem for shippers is that restrictions on capacity that con- tributed to last year's crunch largely remain in place, namely the availabil- ity of truck drivers and the electronic logging device (ELD) mandate, which shocked and shortened supply chains in early 2018 after taking effect in December 2017. The variable in 2019 will be freight demand. Trucking companies ordered an astounding number of trucks in 2018, banking on continued strong economic growth and their ability to attract more truck drivers with higher wages. Many trucks have yet to be built, however, and forecasts for a slower economy, and continuing difficulty hiring truck drivers, has led some carriers to cancel Class 8 orders. The quarterly JOC Truckload Capacity Index, a measure of capac- ity at large over-the-road fleets, rose 5.6 percentage points over the first nine months of 2018, to 85.7, in the third quarter, the highest reading for the index since 2008. That's a sign that large truckload carriers expanded their fleets, in most cases cautiously, as demand gained steam. But unless a new source of truck drivers is found, and quickly (see story, p. 96), actual trucking capac- ity is likely to be as close to a con- stant as one can find in supply-chain calculations. Adding new units of capacity, driver by driver, is increas- ingly difficult. Hence the need to utilize existing capacity much more efficiently, often through technolo- gy (see story, p. 102). After a chaotic first half in 2018, there are signs that shippers are utilizing available capacity more effectively. The gap between spot market and contract truckload rates narrowed considerably in late 2018, as shippers challenged by the realities of the ELD era found ways to work with trucking partners and ship more freight with dedicated and contract carriers. In the first half of last year, as truckload capacity reached its tight- est point, a JOC analysis showed shippers were paying an additional 25 to 50 cents per mile to move freight on the spot market when Shippers should find it easier to get a truck this year, as US economic growth moderates, but supply chain complexities will keep pressure on capacity By William B. Cassidy Capacity pressure eases, slowly

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