Ever since COVID-19, the global economy has been on a rollercoaster ride, experiencing significant ups and downs brought about by supply chain issues either caused or exacerbated by the pandemic. It’s a tale told around the globe: after the pandemic receded and the supply chain began to right itself, there was a mad dash to buy things. This purchasing “fever” was augmented by a massive infusion of government cash into the world economy. The expected (yet unwelcome) result: inflation as governments infuse more capital into the economy and more dollars chase less goods.

As prices began to rise, consumers and businesses realized that they might have overcompensated when it came to purchasing and pulled back. The “free” capital has essentially been used up, further leading to a drop in demand. This drop in demand has been especially trying for the transportation industry, which like other industries, was impacted by supply chain shortages. When the supply chain loosened up, fleets rushed to buy new assets even though post-pandemic prices skyrocketed.

The Freight Recession

The U.S. economy continues to show unexpected strength with job numbers and stock market indexes rising. Although there is still some concern among certain groups that a recession might occur, for the transportation industry, that recession is here when it comes to freight. Quite simply, the freight volumes that carriers were counting on didn’t occur. In fact, as interest rates increased along with inflation, less goods were moving as demand decreased. That, in turn, is impacting carriers’ decision whether or not to invest in new equipment.

It’s important to remember that our industry faces challenges that go well beyond the pandemic, rising interest rates, and falling demand. Right now, attacks on shipping in the Red Sea are causing chaos. As of January 19, “Flexport says, almost 25% of global shipping capacity is being or will be diverted from the Red Sea, adding thousands of miles and a week or two to trips. The cost of shipping a standard 40-foot container from Asia to northern Europe has surged from less than $1,500 in mid-December to nearly $5,500.” A Reuters report details how this chaos is impacting different commodities.

In addition to attacks by militants, the industry is also facing “attacks” from Mother Nature. An article in The Maritime Executive addresses the drought in the Panama Canal, which is also slowing down shipping time. This is disastrous since, annually, between 13,000 and 14,000 ships cross the canal. But with the worst drought in seven decades, the Panama Canal Authority has to limit not just the number of vessels crossing but the size of the ships as well, since the draft limit has been reduced from 50 feet to 44 feet. Smaller ships mean less cargo. And wait times have increased as well.

Some Carriers Are Worse Off Than Others

Although the situation is tough for all carriers, it’s the smaller ones that are suffering the most. Contract carriers with larger fleets have contracts with shippers to move freight at an elevated price in this market. But most freight, a full 80% percent, is hauled by carriers with less than 10 trucks. In fact, a majority of independent Owner-Operator carriers have only one to three trucks and operate in the spot freight market.

These smaller carriers that bought trucks at post-pandemic highs, now find themselves unable to find freight that will actually pay them enough to go from Point A to Point B. They simply can’t find enough freight to make payments on the assets they purchased at the high prices. That’s because, even if you’re carrying 80 percent of freight, as freight volumes decrease, you have all of these smaller carriers fighting over the same smaller volumes. The result is, sadly, many of these independent Owner-Operators are going out of business. This has led to an oversupply of used equipment during a time of lower demand. The cost of used trucks has decreased 60 to 70 percent from their post-pandemic highs.

This Year Poses Extra Challenges

Every year is challenging in our industry, but when you have a presidential election, new EPA regulations, climate disasters, attacks on shipping, lower demand, changing technology, and a volatile economy, it’s a veritable tsunami of challenges. Each business is going to need to explore how to get back to a somewhat normal environment where we can identify a reliable year-to-year pattern. And that’s going to be a challenge in itself.