How Trucking Companies Can Weather Future Freight Cycles

Like much of the transportation sector, the trucking industry has undergone a series of major transformations, as powerful forces drive the industry toward greater efficiency. But trucking companies also confront significant challenges, such as fleet overcapacity, narrower profit margins, and unpredictable freight cycles. Those in the best position to navigate such shifts are the ones that make operational efficiency a core focus.

A key competitive differentiator in the coming years is cloud-native technology that will enable trucking companies to manage remote workforces more efficiently, cut down on operating costs, and improve margins. Many companies still rely on inefficient and outdated logistics tools that cause headaches for everyone from dispatchers to drivers to accounting teams. This doesn’t just cost trucking companies money — it prevents them from adapting to shifting market conditions and freight cycles. 

While trucking companies face many challenges, they have never had more powerful digital resources to address these challenges and give themselves a competitive edge. As the industry continues to contend with margin compression, longer freight recession cycles, overcapacity, and a range of other issues, it’s critical to ensure that their logistics management processes are as streamlined and effective as possible. 

An Ever-Shifting Industry

The evolution of the trucking industry is driven by an array of factors, from shifting geopolitical realities to import and export trends and the struggle to boost manufacturing productivity. Since the COVID-19 pandemic, overcapacity has been among the industry’s most pressing issues. Between early 2020 and the middle of 2022, the number of new carriers nearly quadrupled monthly (from fewer than 3,000 to just under 11,000), and many carriers still have an oversupply of trucks and larger cash reserves. Although the rate of new carriers has fallen, it remains above the pre-COVID level. More trucks and trucking companies equal an oversupply of capacity, allowing shippers to pay less to move freight.

The declining number of carriers reflects a difficult reality for the trucking industry. It’s still in a long and painful freight recession, driven by a lack of demand and systemic factors like outsourcing. Overcapacity has proven to be very stubborn, but there are signs that contract rates are improving and that the industry may have reached a bottom. 

There are a few reasons that rates have remained depressed for so long. Beyond the inevitable post-COVID contraction and excess capacity, outsourcing and cloud-native logistics technologies have allowed trucking companies to lower costs, which allows even the newest and smallest trucking companies to stay in business longer than they would otherwise. This benefits shippers in the form of reduced rates, though companies are still dealing with tighter margins. As a result, the industry is seeing longer freight recession cycles. As the industry emerges from a protracted freight recession, operational efficiency will distinguish market leaders from their peers.

The Importance of Efficiency

At a time when freight recession cycles are becoming longer, trucking companies must make operational efficiency a top priority. Yet small trucking companies often lack modern systems for load and driver management, dispatch, accounting and other operations. This is an urgent problem, as 95.5% of carriers have just 10 or fewer trucks. When companies use cumbersome and inefficient logistical resources, they miss business opportunities, face higher costs (which will be passed onto consumers), and contend with bottlenecks that disrupt operations. 

There are many ways that trucking companies can improve operational efficiency, including managing capacity more intelligently, improving forecasting and other forms of data analysis and, perhaps most importantly, implementing cutting-edge transportation management system (TMS) software. The trucking industry continues to face plenty of headwinds, but the technology available to it is only becoming more advanced. 

Preparing for the Future

It’s difficult to recall a period that spurred more change in the trucking industry than what we’ve witnessed over the past few years. There have been wild oscillations in freight demand and capacity. The vast majority of supply chains have been focused on nearshoring — in 2023, Mexico overtook China as the main source of goods imported by the U.S. (breaking a trend that had lasted for over two decades). The effects of COVID-19 and its aftermath continue to be felt in companies’ fleet sizes and balance sheets, as well as demand trends.

Trucking companies are exploring more modern TMS applications to adapt to these changes. One of the main problems with existing logistics tools is that they’re disjointed — instead of providing a centralized source for workflows, communications and data management, they’re siloed within different parts of the company. This leads to a lack of visibility, which is an important aspect of supply chain resilience. Legacy logistics platforms are often incapable of handling critical functions such as managing outsourced staff and remote workers, and they lead to higher costs and less efficiency across the board. 

Just as outsourcing, nearshoring and new transportation management applications have reduced costs for trucking companies and helped them survive a long freight recession, rapidly emerging technology such as artificial intelligence can cut staffing demands and other types of overhead even more. But AI can’t be implemented in a vacuum — it’s necessary for companies to build up the infrastructure necessary to make the most of new technologies, which will be indispensable for an increasingly competitive industry in the coming years. 

As this freight recession cycle appears to be nearing its end, trucking companies must remember that downturns and other economic shocks are inevitable and may last longer in the future. They need to invest in the resources that will help them predict and prepare for future recessions, and whatever else may await them in the coming years.

Nick Darman is founder and chief executive officer of Alvys.