The Not-So-Surprising Prevalence of Abandoned Truck Trailers in a Disjointed Freight Market

The freight ecosystem is inundated with truck trailers after an explosion of orders and OEMs following suit with producing them during the pandemic. Market disjointedness might be hiding the mess.

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As we inch closer to the end of this year, there is a feeling of dejection writ large across supply chain stakeholders, albeit for different reasons. Shippers complain of weak consumer demand signals as we near the peak retail season, trucking firms are unhappy with falling freight rates and demand, and liners are trying their best to mask their fresh supply of container ships with blank sailings (knowing full well that rates will not climb as long as consumer demand — the root cause for this all — continues to plateau). 

Much like the container liners’ headache with excess capacity, the trucking industry contends with its own surplus of idle equipment — the disjointed, out-of-balance, unutilized, abandoned (however you call it) trailers. Tens of hundreds of trailers lie scattered across overflow yards and warehouses, as sorry remnants of a historically hot freight market that saw a large portion of carriers chasing spot loads. 

To understand the disjointedness, getting in the shoes of a trucking carrier would be a good place to start. The goal for any carrier is to run routes and lanes that are most profitable. An ideal relay would be a port-to-port round trip that involves one driver with a truck and trailer to reach the origin of freight, pick it up, drop it off at the destination, and return (or reach the subsequent pickup).

However, it isn’t always the case, and certainly wasn’t during the pandemic. A power unit carrying a trailer was, more often than not, forced to queue and wait for drop-off. Detention times lengthened from a few hours to days (or even weeks). And since most shippers and brokerages refused to pay for detention time due to budget constraints, truck drivers dropped off their trailers with the freight, only to coordinate with the yard to pick it up later. While drop-and-hook would have been ideal under such circumstances, carriers weren’t always that lucky, with trucks ending up bobtailing and incurring empty miles in the process. 

While detention times can suck and trailer drop-offs were relatively common, the situation exacerbated heavily during the pandemic. This was a time when there was more freight than assets, as carriers, especially the owner-ops and SMEs, who had never run certain lanes, were tempted by the lucrative spot market to move away from dedicated services that were more reliable.

This consequently resulted in trailers scattering across the country, courtesy of carriers chasing high-dollar spot market loads. But the pandemic did wane, and so did consumer retail spending. As the tide of freight demand receded, it caught many carriers with their pants down, as they suddenly found themselves with trailers stuck in locations with no business to justify moving them. 

“The industry realized it had made a lot of money during the pandemic, but was now out of balance,” said JD Redmon, the chief revenue officer of vHub, a trailer repositioning marketplace. “My conversations with major trucking companies showed the overwhelming cost inefficiencies they faced, sometimes spending thousands to reposition trailers.”

While trailer repositioning is an issue that persists across the length and breadth of the trucking sector, the impact of the problem invariably is based on the size of the authority in question. 

“Think of an owner-operator. He has one truck and a trailer, and he’s possessive of his trailer. He’s not going to let any shipper gobble it up. He doesn’t care if the shipper screams at him to get off the lot; he waits till his trailer gets unloaded before driving off,” said Redmon. “This scenario doesn’t change much as the owner-operator adds another trailer or two. But when the assets grow to 5-10 trailers, and trucks run one to two or one to three, the disjointedness starts to rear its head.”

This disjointness continues to spread as the number of tractor assets increases within the firm, making operations quite sloppy in the process. And when numbers swell to, for instance, 500 tractors and a one-to-three tractor-trailer ratio, the risk of losing trailers can be a very real possibility due to them being scattered across the country. 

“Till around 1,500 tractors, companies don’t really care about the disjointedness as they’re growing relationships and hauling more freight. They do realize they’re leaving out trailers across the place, but keep up with them and plan on reaching them eventually,” said Redmon. “Because profits are good, this isn’t the first thing on their mind.”

But disjointedness hits differently if you’re the JB Hunts and Schneiders of the world. “You’ll hear the mega carriers say it’s nothing for them to ride with 15% or 25% empty, because they have assets everywhere. They have drivers everywhere. They focus on leveraging their massive size and scale, rather than spotting lost or abandoned trailers.”

This brings us to the crux of the conversation — the rather large number of trailers that lie gathering dust in yards today. At the height of the pandemic, OEMs and trailer leasing companies saw trailer utilization skyrocket (due to reasons discussed so many times before). Orders for new trailers came pouring in as carriers struggled to get hold of scarce assets in the wake of mounting demand. 

Everything changed when the market flipped. “There’s a lot of talk about orders going up the roof. But very few talk about the plight of OEMs today as they try to get new trailers to the asset owners,” pointed out Redmon. “OEMs are struggling to get carriers to come and get their trailers or even reposition because, technically, the carrier doesn’t really need that asset in this loose market. When you’re seeing the spot market bottoming out now, it’s not just due to less freight demand, but also since there are too many assets in the network. There’s an oversaturation of trailers.”

That said, trailer disjointedness, although quite aggravated by the pandemic, has always been a thorn in carrier operations. “I fly to and from the Dallas Fort Worth airport very frequently over the past seven years. I see the FedEx overflow yard with dry vans and trailers of various colors every time. And guess what? They’ve all been in the exact same spot for seven years. They never moved,” said Redmon.  

The question is, why do the mega carriers continue to order new trailers when they apparently are overflowing with them anyway? The answer might have a lot to do with them needing to face their shareholders. As public companies, mega carriers are beholden to their shareholders, and so, they seldom cut down asset orders — even if it means they go straight to the overflow yard or end up being part of an aggressive firesale to dealerships just to get rid of them. 

“I see the disjointedness of getting them to the trailer networks where they need to be. That’s the issue,” said Redmon. “Eventually, we’d have to look up and wonder why we are building almost a million trailers a year when we’re clearly not utilizing a million trailers a year.”

The Week in Snippets

In September 2023, trans-Pacific shipping services experienced improved on-time performance despite record imports from Asia, with on-schedule arrivals to the US West Coast reaching 47.8%. This improvement was attributed to increased capacity and fewer canceled sailings, although draft restrictions on the Panama Canal may impact reliability to the US East Coast.

The freight transport sector is at a potential "tipping point" due to rising fuel costs and a challenging economic landscape. With shipper volumes down and carrier rates depressed, carriers are becoming more selective in accepting bids, focusing on profitability, while shippers prioritize stable and reliable carriers. Amid these challenges, the World Bank warns of potential record-high oil prices due to geopolitical risks, further complicating outlook.

Ocean carriers are grappling with a shrinking gap between long-term contract rates and volatile spot cargo rates, as evidenced by a 2.6% decrease in the Xeneta long-term freight rate XSI index in October and a significant 62.2% decline over the past year. The situation is expected to worsen, with a forecast of a more severe downturn in early 2024, although some improvement may be seen by May.

Flexport has acquired the technology of the now-defunct digital freight business Convoy, with plans to restore Convoy’s trucking services for its customers in the coming weeks. This move aims to extend Flexport’s US trucking operations, as the digital freight forwarder works towards regaining profitability. The financial details of the deal were undisclosed, and a few dozen product and engineering employees from Convoy will be joining Flexport.

Quotable 

“Container shipping is the archetype business-to-business industry. Pricing decisions are typically driven by pure economic logic and with little consideration for the price considerations in the business-to-consumer industries where it is possible to create more emotionally based buying decisions.”

- Jesper Præstensgaard, the managing partner in Humanostics, while commenting on the container liners’ drive to negotiate prices based on economic and competitive realities.

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