During the COVID-19 pandemic, freight prices skyrocketed, as did consumer demand, attracting thousands of new companies into the trucking industry. Now, a general economic downturn is dampening consumer demand while the cost of operations is higher. This is forcing carriers out of business.
“The truckers were doing very little at that time,” said Erik Larson from Sage Live, a freight broker and logistics expert with more than 20 years in the industry.
Many drivers and carriers were out of business or simply couldn’t afford to drive because the price of shipping was below the cost of operating the trucks.
There was less work to go around, and those who were working were earning less because freight prices were dropping based on demand.
“But then, when China opened up and started shipping again, the volumes of the container ships shot up,” Larson said.
Part of the reason for the huge increase in containers was because China was catching up on past orders, which had been held in factories and ports in the country during the lockdown. The other reason was the changes in spending habits by U.S. consumers. Having so many people working from home increased the demand for products such as computer screens, headsets, and home exercise equipment. Larson also speculates that many Americans used their stimulus checks for compensatory spending because they were stuck in the house. All of this increased demand drove the price of shipping to new heights.
In early 2021, demand outstripped capacity, and there was a shortage of drivers, which drove up wages. Meanwhile, many people who had never been in the industry before saw an opportunity to earn a lot of money.
“People used free government loans to get their commercial driver’s license, or if they already had the license, they used a loan to buy a truck,“ Larson said. ”And they were earning three to four times the normal rate freight.”
However, things are starting to change in 2022. A terrible economy, high inflation, and low consumer confidence have prevented people from spending. Meanwhile, increasing interest rates and a general slowdown are suppressing construction projects. Industrial activity has resulted in lower consumer demand and lower freight volumes.
The Downfall of Trucking in Biden’s Economy
A trucking company is like any other business. It must earn an acceptable profit above its costs to remain in business. In hard times, it may make no profit, but it will continue to operate as long as income is at or above cost. When calculating the cost of operations in 2019, a company might have purchased a used truck for $50,000. Considering the amortized value of the truck plus the interest on loans (excluding fuel), it worked out to 15 cents per mile to operate a truck. In Biden’s economy, the cost per mile is 23 cents.Of course, the price of gas has doubled, but so has the price of all other variable costs of operating a truck. A driver in 2019 cost 47 cents per mile, while in 2022, the cost is 62 cents per mile—an increase of 15 cents per mile. Insurance is up by 2 cents per mile, maintenance is up by 6 cents per mile, and equipment increased by 8 cents per mile. In total, the variable cost went up by 31 cents per mile plus the cost of gas.