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Truckers Expect U.S. Transport Capacity Crunch to Persist

05/02/2021 | 06:14am EDT

By Jennifer Smith

Freight industry executives expect a squeeze on trucking capacity that has been driving up shipping costs for U.S. companies to persist through the rest of the year, as strong demand in a rebounding American economy collides with a shortfall in truck availability.

"There's more freight than trucks, or maybe I should say, than drivers," David Menzel, chief operating officer at freight broker Echo Global Logistics Inc., said in an earnings call Wednesday. "The ports are backlogged, demand is strong, so rates are high. On the other hand, shippers are dealing with high rates, tight capacity and disrupted supply chains."

Manufacturers and retailers including General Mills Inc., Rubbermaid-owner Newell Brands Inc. and Bed Bath & Beyond Inc. have pointed in recent quarterly earnings reports to rising transport costs and tight capacity as operational hurdles as they seek to restock inventories and meet strong consumer demand.

"We continue to be operating in a very disruptive environment because of container shortages coming from Asia, port congestion, trucking shortages," Chris Peterson, finance chief and business operations president of Newell, whose portfolio includes Sharpie pens and outdoor brand Coleman, said in a Friday earnings call.

"We do expect it to be a difficult supply operating environment for the rest of the year," Mr. Peterson said.

Trucking fleets have been stepping up equipment orders and raising driver pay as they compete for labor with industries such as construction. But those efforts still haven't caught up with demand as the freight market roars back in an expanding economy.

Operators say the shortfall could deepen if cargo volumes remain high without a pause before the busy holiday shipping peak.

"The network itself is just so fragile right now," Bob Biesterfeld, chief executive of C.H. Robinson Worldwide Inc., the largest freight broker in North America, said in an interview. If there are more disruptions like the severe weather that roiled supply chains in the first quarter, "we could see some pretty chaotic overall truckload freight markets."

The most recent Cass Information Systems Inc. seasonally adjusted index for U.S. freight demand rose 3.4% from February to March while the separate measure for freight expenditures rose nearly twice as fast, at 6.5%, signaling rapid growth in shipping costs.

Mr. Biesterfeld said constraints include the global semiconductor shortage, which is limiting new truck production. He cited data from transportation data provider ACT Research predicting that net Class-8 trucking capacity would grow by 3% to 3.5% this year, while C.H. Robinson expects truckload volumes to increase by 8% to 12%.

"It's just been this constant increase in the cost of purchased transportation at a rate that's really something that we've never seen," Mr. Biesterfeld said. "It's just been this whipsaw effect to the overall market...We just haven't been able to find equilibrium."

The scramble for capacity has been a boon to middlemen like Minneapolis-based C.H. Robinson that connect retailers and manufacturers to thousands of truckers, including small operators and independent drivers.

C.H. Robinson's overall first-quarter revenue rose 26.3% to $4.8 billion, including a 13.7% gain in its North American Surface Transportation segment. The cost per mile for truckload freight surged 33.5% in the quarter compared with the same period in 2020, accelerating after year-over-year increases of 32.5% and 16.5% in the previous two quarters.

Rival Echo Global reported a 45.3% climb in quarterly revenue to $800.8 million compared with the same period in 2020.

Most big trucking companies so far aren't suggesting much more capacity is on the way in the coming months.

Green Bay, Wis.-based truckload carrier Schneider National Inc. scaled back a year-end goal of returning its over-the-road fleet to 6,000 trucks after numbers fell last year due to hiring challenges. Chief Executive Mark Rourke said in an earnings call Thursday that capacity constraints and other "alternative opportunities for growth" made 5,500 "a more appropriate target."

Schneider beat analyst expectations for first-quarter earnings, and logged a 49% increase in revenue in its logistics business unit connecting shippers with third-party truckers.

Freight brokerage also helped drive first-quarter gains at Werner Enterprises Inc., a large Omaha, Neb.-based carrier. The company reported 23% revenue growth in its logistics segment compared with the same period in 2020, while overall revenue rose 4% to $616.4 million.

"We know how tight this market is," Werner Chief Executive Derek Leathers said in a Wednesday earnings call. "I don't think that you're going to see any capacity relief coming in 2021."

Allison Prang contributed to this article.

Write to Jennifer Smith at jennifer.smith@wsj.com

(END) Dow Jones Newswires

05-02-21 0814ET

Stocks mentioned in the article
ChangeLast1st jan.
CASS INFORMATION SYSTEMS, INC. 0.61% 46.06 Delayed Quote.18.38%
DJ INDUSTRIAL 0.04% 34479.6 Delayed Quote.12.61%
ECHO GLOBAL LOGISTICS, INC. 0.61% 32.94 Delayed Quote.22.82%
GENERAL MILLS, INC. -0.08% 62.52 Delayed Quote.6.33%
NEWELL BRANDS INC. 1.48% 28.04 Delayed Quote.32.08%
SCHNEIDER NATIONAL, INC. 0.75% 22.86 Delayed Quote.10.43%
WERNER ENTERPRISES, INC. 1.12% 45.33 Delayed Quote.15.58%
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