Struggles ahead for truckers as market softens, pricing power swings back to shippers
The last two years have invigorated the bottom lines of the nation’s trucking fleets. As inflation powers ahead, consumers switch spending from goods to services, and supply chains remain disrupted, is the trucking profit party about to end?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The U.S. economy, whipsawed by high inflation and persistent supply chain disruptions yet still with unemployment in the low single digits, is signaling a shift for truckers. After two full years of strong demand and tight capacity driving higher freight rates, some leading indicators are foreshadowing softer demand and the prospect of muted freight volumes that could swing the pricing pendulum back in favor of shippers—and potentially send some truckers reeling into bankruptcy.
Are the ominous dark clouds of a freight recession just over the horizon, or are we seeing only a passing thunderstorm as the market adjusts and finds its way back to a new form of normal? For the nation’s trucking services, that depends on which part of the freight sandbox you’re playing in.
“We are clearly seeing a [truckload] market normalization in process,” says Avery Vise, vice president of trucking at freight consultancy FTR Transportation Intelligence. “So far it is pretty stable. Earlier this year, we started to see contract players finally get enough capacity to bring down tender rejections and handle a lot more of the volume [under contract rates]. And that’s led to spot rates coming down.”
Vise thinks the market still has “an elevated level of spot-market volume relative to the norm.” He sees that as a shift with some legs, citing the maturation of digital brokerage technology and the proliferation of digital freight platforms that can quickly and accurately find and book available capacity—and keep truckers rolling.
“That allows intermediaries to have access to and manage capacity like an asset-based carrier, so they can compete for contract freight,” he says. “I’m not sure the terms ‘spot’ and ‘contract’ have the same meaning anymore,” he adds.
And while he believes “[truckload] spot rates have a lot more softening to do,” he says he doesn’t see “a lot of [early] relief for shippers on contracts. Not a whole lot of carriers are receptive to [price reductions] at this point, especially since their expenses are through the roof. Freight continues to be very strong even with inflation.”
Nevertheless, Vise sees spot rates through the latter part of this year and into next year experiencing “low double-digit declines.” He expects contract rates to eventually follow next year but “not really what I would call precipitous,” estimating low single-digit declines with 2023 contract bids.
RISING COSTS PUT PRESSURE ON RATES
Yet even as the market appears to soften, some truckload carriers are still rejecting hundreds of loads a week. A case in point is North American truckload operator CFI. “There are pockets out there that are a bit looser than they have been in the past, but overall, we’re not strained for load count,” says Greg Orr, executive vice president of U.S. truckload for TFI and president of CFI, which has 93% of its business under contract. “We are being told by our customers they expect to have a normal third- and fourth-quarter push. No one is telling us anything that says red flags are being thrown up.”
He notes that for CFI, with its heavy emphasis on contract shippers, rates are holding steady, and the carrier is securing increases. “From my perspective, shippers are willing to take some type of modest increase to lock in that committed capacity instead of playing the spot market,” he says.
Orr adds that shippers well recognize that operating costs for truck lines continue to escalate, with little relief in sight. “Not only diesel fuel, but think of all the other petroleum products used in a truck, and costs for maintenance, servicing, tires, and other parts,” he says, noting that some vendors have increased prices three and four times over the past 12 months. Costs for new trucks and trailers continue to climb incrementally year over year.
And the cost inflation doesn’t stop there. “Then there is investing in our employees,” Orr adds. “We increased driver pay to ensure we compete effectively for qualified drivers. And we just rolled out a 10-plus percent increase for our independent contractor program to secure supplemental capacity.”
AS COSTS RISE, A FOCUS ON SERVICE
For the less-than-truckload (LTL) side of the business, the story is similar in some respects, particularly with respect to rising operating costs. “There is nothing in our business that is not inflationary,” noted Fritz Holzgrefe, president and chief executive officer of LTL carrier Saia. Yet the demand picture remains relatively strong in LTL. Some 65% to 70% of Saia’s business is industrial-oriented versus retail. In the second quarter, shipments at Saia were up 1.8%, while tonnage per workday was up 2.2%.
Pricing remains firm as well. Holzgrefe says that contract renewals in the second quarter came with an average 11% increase. “Customers … see many of the same things we do; they respect and understand the inflationary pressures,” he notes. Asking for a rate increase is never easy, but Saia’s focus on quality and service helps temper the discussion, Holzgrefe says. “We recognize that for the customer, it’s hard to absorb a rate increase,” he notes, “but let’s talk about what your claims ratio is and your on-time service. That’s where we excel, and it makes the pricing conversation not quite as challenging.”
He added that Saia continues to invest to build out its network. The carrier already has opened five new terminals this year, added two more in August, and will open another five to seven over the balance of the year.
Looking out at the remainder of the year, Holzgrefe says the focus for Saia is to “continue to take care of the customer and execute our business plan. As we grow, regardless of the economic environment, the customer has to have a great experience.” He believes that as supply chains continue to recover and overcome disruption, “the middle mile will be pretty critical and LTL benefits from that. We’re in a good place.”
TURNING CHALLENGES INTO OPPORTUNITY
It’s a similar story at LTL competitor Old Dominion Freight Line (ODFL). “We still characterize demand as strong,” says Adam Satterfield, ODFL’s chief financial officer. And while ODFL’s July’s tonnage was down slightly compared with last year, it likely represented a swing back to traditional seasonal trends where freight volumes tend to soften in July and August before picking up again in September. “[July] was more likely a reflection of what’s going on with the economy and demand for our customers’ products,” Satterfield said. “Feedback we are hearing is all positive with respect to their needs from us.”
As for the rate environment, “it continues to hold steady [and] has been favorable for some time in LTL,” he noted. That’s been crucial in a market where cost inflation is chipping away at margins. “We have to make our best efforts to operate efficiently and keep cost inflation per shipment as low as we can to make sure pricing is somewhat in line with the market,” Satterfield explained.
That also supports ODFL’s aggressive strategy of “expanding capacity in a meaningful way that resonates with our customers,” he said. Over the past 10 years, ODFL has invested some $2 billion to grow its service center network, increasing door capacity just over 50% during that timeframe. Its capex (capital expenditure) budget for 2022 is running at about $835 million, with $300 million allocated for real estate (service centers) and $485 million for equipment, including rolling stock.
Currently, ODFL’s network of 255 service centers has about 15% to 20% excess capacity, Satterfield notes. “Our target is 25%, so we want to continue adding capacity consistently, regardless of what the macro environment looks like.”
Going forward, Satterfield points to the eventual normalization of supply chains—and the opportunities that presents for LTL carriers. “Practically every customer I speak with talks about supply chain challenges they continue to face,” he notes. Parts and components needed to finish products on backlog. Inventories in the wrong place at the wrong time that need to be rebalanced. “That helps us in a way,” he says, noting that even as the economy slows, those challenges become opportunity for LTL carriers. “That’s why more importance is placed on service quality, and there is no other carrier in LTL that offers the level of service we do.”
THE TECH EDGE
Other trucking markets are dealing with different realities. One example is the flatbed market. “Post pandemic, we saw an absolute deluge of freight. It really elevated things for flatbed and was a very robust environment,” recalled Evan Pohaski, founder and CEO of JLE, which operates a 380-truck flatbed fleet in North America.
Flatbed is particularly sensitive to changes in the housing and construction markets. Pohaski saw things begin to shift as spring turned to summer this year. “We’ve got this really squirrely situation where there is the war in Ukraine, interest rates going up, and consumers making the transition from buying goods for the home back into services. That’s taking the wind out of the sails for flatbed,” he says, noting in particular that as interest rates rise, that puts a damper on freight volumes for housing and industrial shippers. All of which is driving a retrenchment in demand.
Yet based on conversations with customers, Pohaski says he’s confident that as the economy moves into the back half of the year, “there will be a floor on rate compression because the structural costs of the business have gone up for everyone.” And while 90% of his business is longer-term contract customers versus “you call/we haul” spot moves, it’s a much faster-paced market where agility and flexibility coupled with accurate, timely capacity and pricing information is key. That’s an area where Pohaski believes JLE has an edge.
Today’s shippers are armed with better technologies, and carriers have to match that in the systems and platforms they use to rate, route, and run the business. It’s where JLE has heavily invested and built its own proprietary tools, Pohaski says. As a result, “we are more confident in engaging with a more fluid and dynamic rating structure. We have contract customers changing rates sometimes on a daily basis. [Our systems] represent the fair market value in any given lane at any given time. That provides our drivers (80% of whom are independent contractors) with that level of timeliness and transparency they need. That’s one of our biggest value propositions.”
DISPATCHES FROM THE DRAY AREA
Another subset of the trucking market is container drayage. Trac Intermodal is the nation’s largest provider of marine chassis, deploying nearly 200,000 chassis at over 600 locations that provide drayage of marine containers to and from ports to intermodal yards, warehouses, and other locations. Trac does not operate the chassis itself; it provides procurement, fleet management, maintenance and servicing, and leasing of chassis to end-users.
Trac will set up a private chassis pool in a dedicated commercial arrangement with an ocean carrier or beneficial cargo owner. It also operates other pools where an independent trucker can pick up a chassis and use it for as little as a day or a week.
The key for chassis pool operators is getting as many “turns” per week or month as possible. A chassis dwelling on the street for a week or more means it can’t be returned and reissued. Congestion at the ports, delays at intermodal railyards, and shippers keeping boxes on chassis at warehouses too long are the biggest challenges chassis fleet operators face in keeping the chassis supply chain flowing smoothly, notes Val Noel, Trac’s executive vice president and chief operating officer.
“We have seen an uptick in both long-term terminal and street dwell,” he says. Chassis are sitting for an extended time out on the street, saddled with containers left unloaded due to labor and capacity issues at warehouses. He adds that shippers who have embraced “just in case” stocking practices have created inventory surpluses, which also impacts chassis return and reuse. “You don’t want to have product due in the store in November sitting in a container in June,” he notes.
One solution has been working with ports to establish “off terminal” distribution yards, which gets chassis out of ports and makes them available to more users in a central place. Trac established three such yards with the Port of New York & New Jersey. That allowed the chassis “to be used exclusively for pickup and delivery of cargo, not trapped in the marine terminal,” while supporting “better asset availability and utilization,” said Noel. That interoperability and flexibility to move any type of container “checked a lot of boxes people in our industry are clamoring for around change,” he noted.
If anything, the second half of the year will be a period that demands patience and perseverance as a shifting economy, inflation, rising interest rates, and other factors impact trucking operators. The biggest challenge? “If you are a small trucker, it’s staying alive,” says Jason Seidl, managing director at investment firm Cowen & Co. “If you have made it this far, you are battered and bruised. If you are a large trucker, the challenges are what they have always been: How do you ultimately maximize profit and grow?”
Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.
Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.
The tool leverages data from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) to project scores to varying locations using those eight category indicators: tropical cyclone, river flood, sea level rise, heat, fire weather, cold, drought and precipitation.
The Climate Risk Scores capability provides indicator risk projections for key natural disaster and weather risks into 2040, 2050 and 2100, offering several forecast scenarios at each juncture. The proactive planning tool can apply these insights to an organization’s systems via APIs, to directly incorporate climate projections and risk severity levels into your action systems for smarter decisions. Climate Risk scores offer insights into how these new operations may be affected, allowing organizations to make informed decisions and mitigate risks proactively.
“As temperatures and extreme weather events around the world continue to rise, businesses can no longer ignore the impact of climate change on their operations and suppliers,” Jon Davis, Chief Meteorologist at Everstream Analytics, said in a release. “We’ve consulted with the world’s largest brands on the top risk indicators impacting their operations, and we’re thrilled to bring this industry-first capability into Explore to automate access for all our clients. With pathways ranging from low to high impact, this capability further enables organizations to grasp the full spectrum of potential outcomes in real-time, make informed decisions and proactively mitigate risks.”
According to New Orleans-based LongueVue, the “strategic rebranding” brings together the complementary capabilities of these three companies to form a vertically integrated flexible packaging leader with expertise in blown film production, flexographic printing, adhesive laminations, and converting.
“This unified platform enables us to provide our customers with greater flexibility and innovation across all aspects of packaging," Joe Piccione, CEO of Innotex, said in a release. "As we continue to evolve and adapt to the changing needs of the industry, we look forward to delivering exceptional solutions and service."
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Stampin’ Up!’s Riverton, Utah, distribution center
What happens when your warehouse technology upgrade turns into a complete process overhaul? That may sound like a headache to some, but for leaders at paper crafting company Stampin’ Up! it’s been a golden opportunity—especially when it comes to boosting productivity. The Utah-based direct marketing company has increased its average pick rate by more than 70% in the past year and a half. And it’s all due to a warehouse management system (WMS) implementation that opened the door to process changes and new technologies that are speeding its high-velocity, high-SKU (stock-keeping unit) order fulfillment operations.
The bottom line: Stampin’ Up! is filling orders faster than ever before, with less manpower, since it shifted to an easy-to-use voice picking system that makes adapting to seasonal product changes and promotions a piece of cake. Here’s how.
FACING UP TO CHANGE
Stampin’ Up!’s business increased rapidly in 2020, when pandemic-era lockdowns sparked a surge in online orders for its crafting and scrapbooking supplies—everything from rubber stamps to specialty papers, ink, and embellishments needed for home-based projects. At around the same time, company leaders learned that the WMS in use at its main distribution center (DC) in Riverton, Utah, was nearing its end-of-life and would have to be replaced. That process set in motion a series of changes that would upend the way Stampin’ Up! picked items and filled orders, setting the company on a path toward continuous improvement.
“We began a process to replace the WMS, with no intent to do anything else,” explains Rich Bushell, the company’s director of global distribution services. “But when we started to investigate a new WMS, we began to look at the larger picture. We saw problems within our [picking] system. Really, they were problems with our processes.”
Stampin’ Up! had hired global supply chain consulting firm Argon & Co. to help with the WMS selection and implementation, and it was that process that sparked the change. Argon & Co. Partner Steve Mulaik, who worked on the project, says it quickly became clear that Stampin’ Up!’s zone-based pick-and-pass fulfillment process wasn’t working well—primarily because pickers spent a lot of idle time waiting for the next order. Under the old system, which used pick-to-light technology, workers stood in their respective zones and made picks only from their assigned location; when it came time for a pick, the system directed them where to make that pick via indicator lights on storage shelves. The workers placed the picked items directly into shipping boxes that would be passed to the next zone via conveyor.
“The business problem here was that they had a system that didn’t work reliably,” Mulaik explains. “And there were periods when [workers] would have nothing to do. The workload was not balanced.”
This was less than ideal for a DC facing accelerating demand for multi-item orders—a typical Stampin’ Up! order contains 17 to 21 items per box, according to Bushell. In a bid to make the picking process more flexible, Mulaik suggested eliminating the zones altogether and changing the workflow. Ultimately, that would mean replacing the pick-to-light system and revamping the pick-and-pass process with a protocol that would keep workers moving and orders flowing consistently.
“We changed the whole process, building on some academic work from Georgia Tech along with how you communicate with the system,” Mulaik explains. “Together, that has really resulted in the significant change in productivity that they’ve seen.”
RIGHTING THE SHIP
The Riverton DC’s new solution combines voice picking technology with a whole new process known as “bucket brigade” picking. A bucket brigade helps distribute work more evenly among pickers in a DC: Pickers still work in a production-line fashion, picking items into bins or boxes and then sending the bins down the line via conveyor. But rather than stop and wait for the next order to come to them, pickers continue to work by walking up to the next person on the line and taking over that person’s assignment; the worker who is overtaken does the same, creating a process in which pickers are constantly filling orders and no one is picking from the same location.
Stampin’ Up! doesn’t follow the bucket brigade process precisely but has instead developed its own variation the company calls “leapfrog.” Instead of taking the next person’s work, pickers will move up the line to the next open order after completing a task—“leapfrogging” over the other pickers in the line to keep the process moving.
“We’re moving to the work,” Bushell explains. “If your boxes are full and you push them [down the line], you just move to the open work. The idea is that it takes the zones away; you move to where the next pick is.”
The voice piece increases the operation’s flexibility and directs the leapfrog process. Voice-directed picking allows pickers to listen to commands and respond verbally via a headset and handheld device. All commands filter through the headset, freeing the worker’s eyes and hands for picking tasks. Stampin’ Up! uses voice technology from AccuSpeechMobile with a combination of company-issued Android devices and Bluetooth headsets, although employees can use their own Bluetooth headsets or earbuds if they wish.
Mulaik and Bushell say the simplicity of the AccuSpeechMobile system was a game-changer for this project. The device-based system requires no voice server or middleware and no changes to a customer’s back-end systems in order to operate. It uses “screen scrape” technology, a process that allows the collection of large volumes of data quickly. Essentially, the program translates textual information from the device into audible commands telling associates what to pick. Workers then respond verbally, confirming the pick.
“AccuSpeech takes what the [WMS] says and then says it in your ear,” Bushell explains. “The key to the device is having all the data needed to make the pick shown on the screen. However, the picker should never—or rarely—need to look at the screen [because] the voice tells them the info and the commands are set up to repeat if prompted. This helps increase speed.
“The voice piece really ties everything together and makes our system more efficient.”
And about that system: Stampin’ Up! chose a WMS from technology provider QSSI, which directs all the work in the DC. And the conveyor systems were updated with new equipment and controls—from ABCO Systems and JR Controls—to keep all those orders moving down the line. The company also adopted automated labeling technology and overhauled its slotting procedure—the process of determining the most efficient storage location for its various items—as part of the project.
MISSION ACCOMPLISHED
Productivity improvement in the DC has been the biggest benefit of the project, which was officially completed in the spring of 2023 but continues to bear fruit. Prior to the change, Stampin’ Up! workers averaged 160 picks per hour, per person. That number rose to more than 200 picks per hour within the first few months, according to Bushell, and was up to 276 picks per hour as of this past August—a more than 70% increase.
“We’ve seen some really good gains,” Bushell says, adding that the company has reduced its reliance on both temporary and full-time staff as well, the latter mainly through attrition. “Overall, we’re 20% to 25% down on our labor based on the change …. And it’s because we’re keeping people busy.”
Quality has stayed on par as well, something Bushell says concerned him when switching from the DC’s previous pick-to-light technology.
“You have very good quality with pick-to-light, so we [worried] about opening the door to errors with pick-to-voice because a human is confirming each pick,” he says. “But we average about one error per 3,300 picks. So the quality is really good.”
On top of all that, Bushell says employees are “really happy” with the new system. One reason is that the voice system is easy to learn—so easy, anyone can do it. Stampin’ Up! runs frequent promotions and special offers that create mini spikes in business throughout the year; the new system makes it easy to get the required temporary help up to speed quickly or recruit staff members from other departments to accommodate those spikes.
“We [allocate] three days of training for voice, but it’s really about an hour,” Bushell says, adding that some of the employees from other departments simply enjoy the change of pace and the exercise of working on the “leapfrog” bucket brigade. “I have people that sign up every day to come pick.”
Not only has Stampin’ Up! reduced downtime and expedited the picking of its signature rubber stamps, paper, and crafting supplies, but it’s also blazing a trail in fulfillment that its business partners say could serve as a model for other companies looking to crank up productivity in the DC.
“There are a lot of [companies] that have pick-and-pass systems today, and while those pick-and-pass systems look like they are efficient, those companies may not realize that people are only picking 70% of the time,” Mulaik says. “This is a way to reduce that inactivity significantly.
“If you can get 20% of your productivity back—that’s a big number.”
With its new AutoStore automated storage and retrieval (AS/RS) system, Toyota Material Handling Inc.’s parts distribution center, located at its U.S. headquarters campus in Columbus, Indiana, will be able to store more forklift and other parts and move them more quickly. The new system represents a major step toward achieving TMH’s goal of next-day parts delivery to 98% of its customers in the U.S. and Canada by 2030, said TMH North America President and CEO Brett Wood at the launch event on October 28. The upgrade to the DC was designed, built, and installed through a close collaboration between TMH, AutoStore, and Bastian Solutions, the Toyota-owned material handling automation designer and systems integrator that is a cornerstone of the forklift maker’s Toyota Automated Logistics business unit. The AS/RS is Bastian’s 100th AutoStore installation in North America.
TMH’s AutoStore system deploys 28 energy-efficient robotic shuttles to retrieve and deliver totes from within a vertical storage grid. To expedite processing, artificial intelligence (AI)-enhanced software determines optimal storage locations based on whether parts are high- or low-demand items. The shuttles, each independently controlled and selected based on shortest distance to the stored tote, swiftly deliver the ordered parts to four picking ports. Each port can process up to 175 totes per hour; the company’s initial goal is 150 totes per hour, with room to grow. The AS/RS also eliminates the need for order pickers to walk up to 10 miles per day, saving time, boosting picking accuracy, and improving ergonomics for associates.
The upgrades, which also include a Kardex vertical lift module for parts that are too large for the AS/RS and a spiral conveyor, will more than triple storage capacity, from 40,000 to 128,000 storage positions, making it possible for TMH to increase its parts inventory. Currently the DC stores some 55,000 stock-keeping units (SKUs) and ships an average of $1 million worth of parts per day, reaching 80% of customers by two-day ground delivery. A Sparck Technologies CVP Impack fit-to-size packaging machine speeds packing and shipping and is expected to save up to 20% on the cost of packing materials.
Distribution, manufacturing expansion on the agenda
The Columbus parts DC currently serves all of the U.S. and Canada; inventory consists mostly of Toyota’s own parts as well as some parts for Bastian Solutions and forklift maker The Raymond Corp., which is part of TMH North America. To meet the company’s goal of next-day delivery to virtually all parts customers, TMH is exploring establishing up to five additional parts DCs. All will be TMH-designed, owned, and operated, with varying levels of automation to meet specific needs, said Bret Bruin, vice president, aftermarket sales and operations, in an interview.
Parts distribution is not the only area where TMH is investing in expanded capacity. With demand for electric forklifts continuing to rise, the company recently broke ground for a new factory on the expansive Columbus campus that will benefit both Toyota and Raymond. The two OEMs—which currently have only 5% overlap among their customers—already manufacture certain forklift models and parts for each other, said Wood in an interview. Slated to open in 2026, the $100 million, 295,000-square-foot factory will make electric-powered forklifts. The lineup will include stand-up rider trucks, currently manufactured for both brands by Raymond in Greene, New York. Moving production to Columbus, Wood said, will not only help both OEMs keep up with fast-growing demand for those models, but it will also free up space and personnel in Raymond’s factory to increase production of orderpickers and reach trucks, which it produces for both brands. “We want to build the right trucks in the right place,” Wood said.
Editor's note:This article was revised on November 4 to correct the types of equipment produced in Raymond's factory.
“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” Bobby Holland, U.S. Bank director of freight business analytics, said in a release. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”
By the numbers, shipments were down 1.9% compared to the previous quarter while spending dropped 1.4%. This was the ninth consecutive quarterly decrease in volume, but the smallest drop in more than a year.
Truck freight conditions varied greatly by region in the third quarter. In the West, spending was up 4.4% over the previous quarter and volume increased 1.1%. Meanwhile, in the Southeast spending declined 3.3% and shipments were down 3.0%.
“It’s a positive sign that spending contracted less than shipments. With diesel fuel prices lower, the fact that pricing didn’t erode more tells me the market is getting healthier,” Bob Costello, senior vice president and chief economist at the American Trucking Associations (ATA), said in the release.
The U.S. Bank Freight Payment Index measures quantitative changes in freight shipments and spend activity based on data from transactions processed through U.S. Bank Freight Payment, which processes more than $42 billion in freight payments annually for shippers and carriers across the U.S. The Index insights are provided to U.S. Bank customers to help them make business decisions and discover new opportunities.