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Nov. 18, 2021, 11:23 a.m. EST

How trucking became the weak link in America’s supply chain

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By Claudia Assis

For years, Justin Raduenz found his work as a freight pricing manager at RGL Logistics highly predictable. The son of a truck driver, he worked out of Green Bay, Wis., managing a team that bid for spot and contract trucking freight work. Tapping into a network of thousands of carriers, he routinely secured quotes for customers from one-truck outfits, large operations and everything in between. Raduenz could move cargo anywhere in America. If it fit in a tractor trailer, he could move it.

With near certainty, Raduenz knew how to anticipate the ups and downs of trucking supply and demand, movements that followed an expected curve. He was immersed in pricing forecast data, “tons and tons of it,” Raduenz says. Then came the pandemic.

“You basically had to throw all your historical data through the window, you had to start from scratch,” says Raduenz. “The real issues came in when e-commerce started to go up considerably.”

The $800 billion trucking industry is arguably the weakest link in the rusty U.S. supply chain that has been overwhelmed by unprecedented demand coming from American consumers for goods. There’s a shortage of truck drivers, and not enough warehouse workers to load and unload truck cargo, and process paperwork. The number of trucks and chassis available to buy and add to overburdened fleets is limited. Stacked shipping containers have clogged up the nation’s biggest ports, such as the Port of Los Angeles, waiting for trucks to take them away and free up space for the flood of containers coming from Asia.

Rising freight prices have been a clear sign of this supply-chain strain. In early 2020, Raduenz used to ship dry goods from Atlanta to Baton Rouge for $900, or from Los Angeles to Atlanta for about $3,000, for example. Raduenz says that an Atlanta-to-Baton Rouge truckload recently cost about $1,800, and the L.A.-to-Atlanta trip has been a more extreme example of the skyrocketing prices, going for at least $8,000. Sometimes, he has struggled to find a reasonably priced way to move goods from one place to another.

Even when Raduenz thought his industry had stabilized a little, around the summer of 2020, his business quickly became chaotic again and the volatility hasn’t stopped. Shipping rates have gone up anywhere between 50% and 150% in comparison to last year depending on destination, pickup location, and length of the trip, Raduenz said. In addition to paying more, shippers have been forced to become more flexible with their timelines.

“The big boom in demand really showed where the supply chain holes are,” Raduenz said. “Every single thing in your apartment, your house, whatever, has been in a truck, transported by a truck driver, or multiple drivers.”

The struggle for manufacturers to deliver commercial trucks

In the first months of the pandemic, people stopped spending on plane tickets, vacations, or steakhouse dinners, and channeled their money toward deck furniture, fitness equipment, and many more steaks and potatoes at the grocery store. When Americans started buying more goods and fewer services, the trucking industry was able to handle the increased volume—up to a point, said Ken Adamo, chief of analytics at DAT Solutions, a transportation information company. Part-time truck drivers turned full-time, and retired drivers returned to the job. Companies started making use of capacity that had been sidelined.

But as the pandemic continued and e-commerce boomed, the industry was swamped by the growing demand for trucking. Typically, trucking companies in a busy year would place bigger orders from truck manufacturers, but the chip shortages and parts shortages that are popularly associated with passenger-car production also hit commercial-truck makers.

In fact, the semiconductor issues are “much more severe for the large tractor trailers,” which take many more chips, than for the passenger vehicles, Adamo said.PACCAR Inc. /zigman2/quotes/207923670/composite PCAR -0.07% , maker of Peterbilt and Kenworth Class 8 truck brands, among others, said recently that it sold 32,800 trucks in the third quarter globally on strong demand, but the ongoing semiconductor shortage reduced sales by about 7,000 vehicles. Tesla Inc. /zigman2/quotes/203558040/composite TSLA +2.07% has pushed the production of the Tesla Semi, an all-electric commercial truck, to 2023.

“Manufacturers have been really struggling to deliver (commercial trucks),” so there’s a constraint in capacity while demand continues to grow, Adamo said. Large logistics and delivery companies such as FedEx Corp. /zigman2/quotes/203047719/composite FDX -0.36% and UPS Inc. /zigman2/quotes/201245396/composite UPS -1.46% , pressed for their own deliveries, are buying extra trucking capacity behind the scenes, adding to the pressure.

Prices of used trucks have soared and buying new ones has become difficult. Matthew Leffler, an executive with trailer-sharing startup vHub, said in the last few years tractor-trailer manufacturers would be making about 350,000 trailers a year, the vast majority “dry vans,” or non-refrigerated trailers. That production has been cut by about half in the past year or so, due to component as well as labor shortages, he said.

Trucking companies looking to buy a trailer, or to get a “build slot” in the industry’s lingo, are getting slots for 2023, and without knowing the price ahead of time. And while large trucking companies may avail themselves of their preferred status with the manufacturers, even they are scrambling.

“The way things are now, you are calling every person you know, and you are calling in favors,” Leffler said. He has heard of people selling their build slots.

Older used trailers, once sold for scrap value, are selling for $5,000 to $10,000, Leffler said. Container chassis, a type of semi-trailer used to haul containers from ports and rail yards, used to cost about $10,000, significantly less than a trailer because they are relatively simple metal frames with eight wheels and a hitch, he said. “They are now double that, if you can find them,” he said.

Virtually all container chassis in use in the U.S. are made in China, like most intramodal equipment, so they also got hit by tariffs put in place by the Trump administration and rising prices of aluminum and steel.

/zigman2/quotes/207923670/composite
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$32.62 billion
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$904,704
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/zigman2/quotes/203558040/composite
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$ 937.41
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$922.32 billion
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$662,097
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/zigman2/quotes/203047719/composite
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$ 243.16
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Market Cap
$64.66 billion
Rev. per Employee
$309,298
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/zigman2/quotes/201245396/composite
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$ 199.00
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P/E Ratio
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$173,748
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