Trinity Transport Blog

Pricing During the Capacity Crunch

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There are two fundamental pressures on freight cost-freight and trucks. Everyone expected an overall decrease in capacity as the number of transportation providers realigned with the amount of freight being shipped. What was not so expected was the magnitude with which this tightening continues and the degree it would affect current pricing. So a lot of people are asking themselves-why is capacity still getting so much worse? The simple answer is that we're still seeing repercussions of the recession play out in the market.

Without getting into the overwhelming details of why the global economy tanked over the last two years, let's suffice to say that freight has gone down. In fact, the American Trucking Association listed the Freight Tonnage Index in June 2009 as below its base level set in 2000. However, overcapacity did not balance itself out as carriers operated at or below costs to stay in business, further driving down prices already depressed from the tumbling economy. At the same time, banks held back from collecting on bad debts from insolvent carriers because there was no market for the used equipment the carriers owed on. This was simply not sustainable, and led thousands of carriers to shut down. Many carriers are still holding on just long enough to close their doors with the arrival of this recent tax season.

But aren't things starting to turn around? Yes, but herein lies the pricing dilemma. Most leading indicators point towards a bottoming out of the economy, and in several areas a small bounce-back. This small increase in freight, combined with decreasing capacity, is resulting in a pricing market more controlled by the carriers than the shippers (as it's been in previous years). Furthermore, since many shippers have already renewed their freight bids and budgeted their transportation costs for 2010, they are now finding themselves unable to find trucks to move their freight, especially at the undervalued rates they tried to lock in for the year.

So where are we now? Pricing as a whole is very erratic as both sides try to find a balance, but is increasing at a surprisingly quick rate in many markets. Carriers are desperately trying to make up for some of the losses they've endured over the last year while the general public is simply not yet spending enough to allow the businesses to afford it. Service failures and price increases are starting to force shippers that had benefited from the price-shopping discounts of last year to once again turn to service-oriented relationships with providers they know they can count on. Pricing is just a starting point for most of our relationships, but it is the service, communication, understanding, and trust that we build on top of it that will keep us all moving towards a brighter future.