Steve Russell, Chairman and CEO of the Celadon Group, an Indianapolis based truckload carrier, gave the keynote address at this week’s Truck World conference and trade show in Toronto. During his speech he highlighted the impact of the current economic downturn on his company’s financial results.

In his address, he touched on the number of class 8 trucks on the road in America and outlined the number of trucks manufactured each year. He indicated that in order for truckers to re-capitalize their fleets each year, there are typically 250,000 trucks manufactured to replace one fifth of the 1.25 million trucks on the road.

Steve noted that at the current rate of production, there will likely be only 120,000 trucks produced this year. He also mentioned that foreign countries (e.g. Russia) are buying a large numbers (40,000) of two and three year old vehicles. The overall capacity in the market is experiencing a decrease as some companies suffering through the freight recession close their doors. In fact, he indicated that trucking company bankruptcies are up significantly from previous years.

Currently this is not a problem for shippers as a host of economic issues have had a negative impact on demand. The lower supply of trucking capacity is in line with the drop in demand.

However, Steve noted that some major shippers are taking steps to protect their companies’ operations as the economy begins to turn and as truck capacity shrinks. Wal-Mart has signed a two year commitment with the carriers that participated in their freight bid; Target Stores has locked in their capacity for three years.

There appear to be many shippers that do not see the capacity storm brewing in 2009. I continue to hear stories of shippers that have put their freight out for bid as many as three times in one year in order to take advantage of the soft freight market. Clearly the danger in doing this is that the carriers that continue to reduce rates are the “bottom feeders”. A number of these companies may not be around when the economies of the United States and Canada begin their inevitable upswing. In addition, as the freight markets firm up, some of the carriers may look at acquiring more lucrative freight to improve their bottom lines.

Shippers should give some careful thought to the actions taken by Wal-Mart and Target Stores. There is definitely going to be a period of upheaval as the dust settles on the current freight recession and demand for truck capacity exceeds supply. The supply will go to those shippers that are paying compensatory rates, have treated their carriers with integrity and respect and have contractual commitments in place. Relying exclusively on the spot market for capacity may result in significant rate shocks over the coming years. For transportation managers seeking to add value to their companies, this is the time to take a longer term view and secure the capacity needed to move their companies’ freight in the years ahead.
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