When it comes to buying trucks and equipment, the majority of owner-operators prefer the used market, according to Overdrive’s Truck Purchase and Lease Survey. Out of all of the survey’s respondents, 56% of them reported buying used trucks, 32% bought new, and less than 10% leased their trucks or equipment.
However, while purchasing used trucks and equipment is preferred among owner-operators, finding said trucks and equipment at a fair price is more challenging than ever. Thanks to the COVID-19 pandemic and the delays in production, brought on by component shortages, many owner-operators are forced to consider other purchasing options.
Unfortunately, truck dealerships aren’t receiving much in the way of new inventory. In 2021, new trucks were being ordered, but they wouldn’t arrive until December. And, to top it off, fewer trade-ins are making their way onto the lots, thus pushing prices of used trucks through the roof. In 2021, used trucks retailed for the most they ever have in the modern era. For example, a used sleeper, with over 450,000 miles on it, sold for a little over $90,000. This price was approximately 85.5% higher than the previous year. And while some industry professionals anticipated a slow descent in used truck prices in 2022, others caved to the pressure of the market and sold off their fleets for substantial amounts of money.
Are higher lending rates to come?
Industry experts also predict that new truck production will eventually catch up and balance out. Once trucks start rolling off of assembly lines, used-truck buyers will want to consider the potential financing impact new truck production could have on trade-ins with higher mileage than normal.
Financing a used truck is already a challenge due to the higher risk lenders take since used trucks typically face engine problems. When the trade-ins that drivers clung onto in lieu of new inventory arrive at dealerships, they will arrive with higher mileage and a higher risk of performance issues. Thus, lenders will be even more hesitant when drivers request financing and likely raise lending rates.
For small fleets, experts believe it may be wise to consider extending the life of their trucks and equipment through maintenance rather than buying new or used. And for any owner-operators who are searching for a used truck in today’s market, they can also expect higher down payments. In fact, those just entering the industry should be prepared to put 25-35% down. Overdrive recently surveyed a group of drivers who recently bought a used truck to further prove the state of the market. They found that 38% of used-truck buyers paid in cash, and 57% of buyers financed with a bank loan or through a captive or specialty lender.
Is a lower interest rate possible?
Despite all of this, there are ways to acquire a lower interest rate on your loan. The main factors that lenders look at to calculate the monthly payment include your credit score, the model year of your truck, how much money you put down, the owner/driver’s business experience, and your resourcefulness.
“I’d rather lend money to a guy with a 600 credit score whose father was an owner-operator, grandfather was an owner-operator, brother is a diesel mechanic, and maybe his credit score is down because of divorce,” Grivas said. “That’s a great risk compared to a guy with a 700 credit score who’s just getting started.”
When buying a new truck, experienced owners and drivers can expect a single-digit interest rate. However, drivers financing a used truck will see interest rates ranging from 10-13% or higher.
How Mission Financial Services can help.
We understand that sometimes times are tough and we’re here to get you back on the road to financial independence. Whether you’re a first-time buyer, have limited driving experience, or have bad credit, we can help.
Mission offers direct lending for owner-operator purchases, lease purchase buy-outs, repair loans, and title loans for operating capital. And even better, we will perform a complete review of applications and get you an answer within four hours.
Our approvals are structured as simple interest contracts with limited terms that let you build equity in your loan quickly to avoid additional finance charges. Mission considers all applicants living in all states except Hawaii and Alaska. And we offer affordable loans and report to all major credit bureaus so you can start turning your credit around. Why wait?
These days, the glowing numbers on gas station signs cause drivers to wince as they pass. What once was affordable for most drivers now costs anywhere between $4 and $6 a gallon in some areas. This surge in fuel prices has become a top concern for consumers, affecting drivers and the broader economy.
Higher fuel prices, especially diesel, strain owners and operators, affect the cost of goods that require transportation via truck, and so much more. In this article, we will look at the reason behind increasing fuel prices, who they affect, and what drivers can do to conserve their fuel.
Fuel prices continue to climb, but why?
The Russian invasion of Ukraine primarily influences today’s surging fuel prices, however, prices were on the rise well before the war. Before the COVID-19 pandemic settled in, energy producers reduced their investments and cut back on projects that were less than profitable. Once the pandemic hit, these same producers minimized output even more as the need for petroleum diminished due to quarantine restrictions.
The economy has since reopened, goods are being manufactured, and the roadways are filled once again. The reboot of society led to a surge in demand and a tightening oil market that led President Biden to tap into the Strategic Petroleum Reserve in hopes of leveling prices, but this plan failed.Once Russia invaded Ukraine, the already fragile energy market was sent spiraling downward. With Russia being the largest oil exporter in the world and the U.S.’s ban on Russian oil imports, U.S. oil reached its highest price point since 2008 at $130 per barrel.
Oil companies are now reluctant to drill and face obstacles like labor shortages and increasing prices for parts and raw materials. On top of that, Russian petroleum product exports are being sanctioned, pushing the price of diesel higher than ever.
All of these factors contributed to the national average of a gallon of gas reaching $4.589, according to AAA. Now, every state in the U.S. averages more than $4 per gallon. In some areas, like California, they’re averaging above $6. And diesel prices retail at an average of $5.577 a gallon, which is 76% higher than last year’s average.
Who is affected by rising fuel prices?
Higher fuel prices impact not only consumer spending but also company spending, affecting many industries, including transportation. For instance, Target is the latest company to speak out about its struggles with higher costs. Target CEO Brian Cornell said, “We did not anticipate that transportation and freight costs would soar the way they have as fuel prices have risen to all-time highs.” Cornell estimates that the higher fuel costs will run the company approximately $1 billion in incremental costs this fiscal year. Walmart executives had similar concerns, “fuel ran over $160 million higher for the quarter in the U.S. than we forecasted.”
But the prices aren’t just impacting domestic costs. Companies like Tractor Supply and Amazon have noted that their import freight costs have increased over the last year. Currently, the cost to ship an overseas container has doubled compared to pre-pandemic rates. Even the airline industry is experiencing the effects of higher fuel prices. The CEO of United Airlines explained that jet fuel prices would cost the company $10 billion more than in 2019.
The ultimate worry for freight companies is how the higher fuel prices will affect the overall cost of operations. A carrier moving shipments from the West Coast to the East Coast will have to pay approximately $1,000 more in fuel costs than in 2021. If things continue in the same direction, this inflation will impact truckload shipping, ocean freight shipping, air cargo shipping, and train shipping costs, which will ultimately cause a domino effect throughout the economy.
5 Tips for Conserving Fuel
Conserving fuel is no longer just a want or a good deed. It’s now something we must do to save money. In the U.S. alone, the trucking industry consumes approximately 38 billion gallons of diesel annually. And 39% of drivers’ operating expenses come from fueling their rig. So, drivers must do what they can to improve their fuel economy.
Here are a few ways they can do so:
1. Drive more responsibly
Follow speed limit signs and take things slow. Studies show that every 5 mph over 65 mph yields a 7% decrease in fuel economy. You can also do things like:
Switch off the air conditioner (weather permitting)
Avoid idling unnecessarily
Turn off your engine when not in use
Use cruise control on the highways (if possible)
2. Improve your truck’s aerodynamics
Research shows that about half of a truck’s fuel is consumed, overcoming aerodynamic drag while traveling at highway speeds. Lucky, there are a few simple ways to improve your truck’s aerodynamics, including using a roof-mounted cab deflector, a deep angled bumper, or a sun visor to push wind to the top of your trailer. You can also use side fairings to avoid turbulence underneath your trailer.
3. Be conscious of the traffic conditions
Every time you have to restart your rig due to stop-and-go traffic, you use a considerable amount of fuel. So, it’s essential to use your GPS and monitor traffic conditions to get to your next location efficiently. Avoiding traffic will also help your clutch last longer.
4. Engine oil & fuel
By simply using the recommended grade of motor oil for your truck, you could improve your fuel mileage by up to 2%.
We also recommend:
Filling up your truck first thing in the morning
Pump fuel at a low setting to minimize vapors
Fill up well before you reach ‘Empty’
5. Conduct regular maintenance checks
Regular maintenance can go a long way in saving you fuel.
Maintenance practices include:
Filling up your tires and changing them when needed
Checking your trailer and drive axle alignment
Watch for any fluid leaks
Invest in an engine overhaul if yours is older
Replace any old or worn-out parts, like fuel injectors
At the end of the day, improving your fuel efficiency by 2% to 3% can help you save your hard-earned money and keep your rig running like new.
Every year, deal seekers prepare for the highly-anticipated sales event, Amazon Prime Day. The retail giant will hold the two-day summer sale on July 12th and 13th and offer significant savings on thousands of products. Amazon recently gave Prime members a sneak peek at this year’s best offers, which include electronics, household staples, beauty products, and more. And while members won’t know the exact details of the sale until midnight EDT on July 12th, we can guess it will be comparable to previous Prime Days.
However, unlike in past years, this year’s event will happen despite some obstacles. So, what can the industry expect this Amazon Prime Day?
Potential obstacles facing Amazon Prime Day
Amazon Prime Day is held annually and offers members a chance to benefit from exclusive discounts and extremely low prices on thousands of items. This year’s sale is coming at an opportune time with some recent issues curbing consumer spending and, in turn, threatening the success of those in the shipping industry.
So, while more sales are anticipated, we do expect a few impediments will get in the way, including:
In May, the inflation rate was at 8.6% –the largest year-over-year increase the country has seen in 40 years. The elevated rate increased the prices of goods and services and decreased consumer spending. However, Amazon swears that its member-exclusive sale will change the tide with savings on products from national brands and small businesses. And there is nothing more valuable than a great deal in a tough economy. As the holiday season approaches and more companies attempt to unload excess inventory with low prices and sales events, consumers will resume spending, and the shipping industry, including the supply chain, will recover.
2. Supply chain struggles
While Amazon still promises that Prime Day will be full of deals for various products, there’s no denying that this year’s selection will differ from previous years. While there will still be a variety of goods, it will be far less than what members are used to due to the shape of the world’s supply chain. But the retailer isn’t giving up. They accumulated their stocks and upped their inventory by almost 47% from Q1 2021 to Q1 2022. The retailer’s sales also increased by about 8% during that same period. So, the supply chain may see further strain depending on how Amazon handles this year’s exclusive event. But, as those within the supply chain have proven time and time again, there’s nothing they can’t handle.
3. Amazon labor shortages and unions
On top of mounting inflation and unrelenting supply chain issues, Amazon is also battling some in-house challenges. If things stay on their current trajectory, the retail giant could run out of workers by 2024. This loss could cripple Amazon’s service quality and growth plans. The memo that explained the labor shortage also explained how the crisis could be delayed, including raising wages and increasing automation. Still, the only way the company could significantly change the course they are on is by altering the way it manages its employees. The company also predicts that it could lose the availability of staff in some regions by the end of 2022. This loss could damage the potential for future sales events, like Prime Day, and, in turn, take a toll on those within the transportation industry who rely on Amazon’s sales.
Amazon Prime Day still has a lot to offer consumers
As previously mentioned, those working within the supply chain could feel some strain during this time of year, but there will still be much to gain. As people hunt for online deals, supply chain workers and transportation professionals will be needed more than ever, meaning job security amid a shaky economy.
In 2018 the trucking industry was flourishing. Drivers were earning more than ever before, which quickly drove people into entering the career. But, in 2019, things took an unexpected turn. As things grew, the demand for trucking services declined, leading to more than a thousand trucking companies going out of business. The incident was later coined “the bloodbath of 2019”.
Now, experts are certain another “bloodbath” could be on the horizon. The question is: are they right?
What caused the bloodbath of 2019?
2017 through 2018 was a prosperous time for carriers in the trucking industry, but when 2019 rolled around, the market dried up and led to a period of contraction. This trying time was labeled as a trucking bloodbath due to the operating ratios for dry van carriers averaging over 100%. Carriers also battled oversupply, lack of demand, and fallen investments. In 2018, fleet owners thought it wise to invest in new trucks, but their investments later proved unbeneficial as 2019’s daily truckload volumes were over 4% under 2018’s volumes. Combined, these factors contributed to many trucking companies closing shop and hundreds of industry professionals without a job.
What is causing the latest trucking bloodbath?
The COVID-19 pandemic has wreaked havoc on global freight markets for the past two years. As we’ve attempted to move forward, the market has taken an unfavorable downturn, and the result could be as detrimental as what we saw in 2019.
Unfortunately, truckloads have already been relatively soft. While March has proven to be a stronger month in previous years, this year’s has not seen the same surge. A few factors contribute to the market’s current state, and industry professionals worry they could be enough to spark yet another bloodbath.
The contributing factors include:
1. Soft truckload volumes and spot rates
In 2020, inflation began creeping up, causing many consumers to slow down on spending and truckload volumes to lessen more and more. This slow truckload decline only worsened when Russia invaded Ukraine at the start of 2022. For the past few years, industry experts have monitored the dwindling volumes and confirmed that spot rates are also falling fast.
With too many trucks on the road and insufficient freight to load them with, spot rates have skyrocketed. In January, spot rates reached $3.83 per mile, and while they are now down to $3.42 per mile, many experts aren’t exactly sure how the rest of the year will play out.
2. Inflation and high fuel prices
As most Americans know, fuel prices, along with everything else, are higher than it’s ever been. This economic chaos is responsible for curbing consumer spending, therefore affecting truckloads and conjuring the foreseen bloodbath.
3. Consumer spending on the decline
After years spent indoors (thanks to the COVID-19 pandemic), consumer spending on physical goods has slowed, while spending on travel and entertainment has increased. Unfortunately, experiences do not drive much in the way of freight. This spending trend has taken much longer to balance out than most experts expected. In fact, in February, retail sales only reached 0.3%, and they haven’t been much better in the proceeding months.
4. Inventory struggles
The lack of inventory has also played a significant role in why many experts believe another bloodbath is on the horizon. After the pandemic, transshipment infrastructures were clogged up, and freight velocity slowed. Many companies were left with barren shelves and unhappy customers. So, the same companies ordered more stock to safeguard themselves against inventory outages. However, this plan backfired and left businesses with more than they needed after prices spiked and consumers cut their spending habits. Now, experts believe the purchasing of goods will slow to work off excess inventory, and truckloads will continue to remain light.
Will some fleets survive the bloodbath?
So far, most of the larger trucking companies have had decent first-quarter earnings this year. According to market projections, analysts believe that the more established fleets will continue to prosper. However, smaller companies may not be so lucky.
Larger carriers don’t have to worry about spot loads or adjust pricing to account for customer rate cuts, whereas smaller fleets don’t have the same luxury. However, both small and large companies should still be cautious. In 2019, hundreds of fleets went bankrupt, three times as many as the year prior. So, when it comes to fleet survival, it really depends on several factors, such as location and client relations.
Moving forward, owners and operators can expect lower rates and an influx of new fleets entering the market, even after loads soften. And with everyone chasing after high spot volumes, fewer opportunities will be available. And as we saw in 2019, the declining spot rates, dwindling volumes, and increased prices will continue to push fleets into another trucking bloodbath. We all just have to hang on for the ride.
The demand for trucking has taken a shocking turn. According to Bank of America, shipping demand is “near freight recession levels,” and the prospects surrounding freight capacity, inventory levels, and shipper rates are moving in a similar direction as they were in the Summer of 2020, at the height of the COVID-19 lockdown.
The managing director of Bank of America, Ken Hoexter, said in a recent investor’s note that a survey found that the demand for trucking is down 23% year-over-year (y/y), and the Truckload Demand Indicator fell to ‘58’— the lowest it’s been since June 2020.
So, what does all of this mean for the future economy? This article will break down what led to this decline in demand and what we can expect to see in the future.
The demand for trucking: Then vs. now
The need for trucking has, for the most part, been a significant pillar in the foundation of our country. Now, as the demand for trucking is slowly dwindling, industry experts wonder what the future holds for the trucking industry.
In the Cass Freight Index, the demand for domestic shipping increased 0.6% in March from the prior year (2021); the percentage is also a 2.7% increase from February. At the end of this year’s first quarter, the creeping growth rate shows Cass Information Systems Inc. that the freight industry is clearly slowing down.
The trucking industry recently experienced historical highs when it comes to freight rates, but those numbers seem to be decreasing as shipping demand and available capacity reach an equilibrium. For example, according to Bank of America, dry van spot rates (excluding fuel surcharges) are down 27% in the past month and 37% since December 2021. The analysis from Bank of America also shows that shipping rates have dropped to their lowest point since July 2020.
Why is the demand for trucking declining?
Over the years, the trucking industry has proven to be a reliable gauge for the U.S. economy’s prosperity or lack thereof. It’s simple math, really—when consumer spending declines, companies purchase less, and, as a result, business in the trucking industry dwindles.
These concerns led policymakers to raise shipping rates by a quarter-percentage point and promise half-point increases starting in May. This increase has caused freight volumes to slow. Since March, the Cass Freight Index shows shipment components are up 0.6% y/y, but this is significantly less than the 3.6% y/y growth the industry saw in February.
Other shipment component stats include:
Although the shipments component rose 2.7% from February, the overall seasonal pattern was still 1.0% lower.
If the Cass Freight Index used a normal seasonal pattern from March to predict shipment components for April and May, we would see an approximate 3% y/y increase in April and a 3% y/y decrease in May.
The year-over-year shipment growth decreased to 0.4% in the first quarter of 2022 from 4.3% growth in the fourth quarter of 2021.
The changes to shipping rates have Wall Street traders predicting a 100% chance of a half-point rate increase at the beginning of May. If they are correct, this increase would be the first time the U.S. central bank has raised federal funds by 50 basis points since 2000.
While some economists believe the actions of the Federal Reserve are too late, others are concerned that stabilizing prices too quickly could trigger a wide economic recession since higher interest rates force consumers and businesses to reduce their spending.
Suppose industries such as retail, housing, and lumber predict needing fewer heavy-duty trucks for shipping. In that case, the trucking industry would be plunged into a recession. This downturn could lead to many businesses going bankrupt, thousands of people across affected industries losing their jobs, and American families severely disrupted. Thus, leading to a nationwide economic crisis.
Picture this: It’s Monday morning, and you’re driving to your workplace. You arrive, only to discover that there are no more available parking spaces. Now what? Do you circle the lot hoping someone will leave and risk being late to work? Do you park in a ‘No Parking’ zone and risk being ticketed or towed?
This scenario is one that many truck drivers face on a daily basis. In fact, truck parking was the fifth largest concern in the American Transportation Research Institute’s (ATRI) 2021 Top Industry Issues poll. The persistent problem has been introduced to legislation over the years, yet there haven’t been many solutions offered to the industry.
The increased shipping demand brought on by the COVID-19 pandemic has led to more trucks on the ground than ever before. The ATA and the OOIDA found that there are approximately 3.5 million truck drivers on the road and only 313,000 parking spaces available nationwide. This shortage has caused three common issues shared by truck drivers.
These issues include:
In 2019, a study found that 98% of truck drivers experience difficulty finding safe parking—this is an overwhelming 23% increase from a 2015 report. Trucking organizations have expressed concern for driver safety and well-being, stating: “When drivers are unable to find safe, authorized parking, they are stuck in a no-win situation, forced to either park in unsafe or illegal locations, or violate federal HOS regulations by continuing to search for safer, legal alternatives.”
In a recent letter to the U.S. Department of Transportation, the ATA and OOIDA said 70% of drivers have violated federal Hours of Service (HOS) rules due to limited parking options. With so few parking spots, drivers are frequently forced to park in unsafe and unauthorized locations, including highway shoulders, interstate entries, exit ramps, and abandoned properties. Parking in these locations poses safety risks to all motorists and makes 84% of truck drivers feel unsafe.
This parking shortage also impacts law enforcement officials. When drivers are illegally parked, police officers are faced with three options; they can 1) ignore the problem and risk getting in trouble with their superiors and jeopardize public safety. 2) ask them to relocate their rig, forcing drivers to violate HOS rules or potentially forcing fatigued drivers to risk public safety. 3) ticket the truck driver and cost hardworking individuals time and money.
The moral of the story: When truck parking is not readily available, everyone’s safety is compromised.
As previously mentioned, law enforcement officers are allowed to ticket drivers of illegally parked semi-trucks. Parking violation fines vary in each state and city, but the total costs can wrack up after the initial fine compounds with potential court costs. And if the driver is ticketed multiple times, their license could be jeopardized. While this personally affects truck drivers, it also cuts into carriers’ profits and can potentially lead to a driver shortage, putting the carrier behind the competition. And if the officer asks the driver to relocate, the carrier could be exposed to fines and penalties from driver protection agencies.
So, the driver, carrier, and anyone else involved in the business feels the impact of the parking shortage.
What can drivers do to avoid parking issues?
While we can’t say for sure when the parking crisis will be resolved, we can prepare truck drivers with knowledge on how to avoid parking troubles.
4 Parking Tips for Drivers
Use apps, like Trucker Path. The app allows drivers to find parking on their route.
Plan your route from start to finish. It may also help to research all available parking along your route in case your ‘Plan A’ doesn’t work out.
Get an early start. Getting on the road before other drivers gives you the advantage when finding parking since your break time will be different from those who got a later start.
Avoid unsafe or illegal parking areas. Parking in designated truck parking areas will help keep you and other motorists safe.