Market or roadway mayhem? A fundamental supply chain dilemma is presented
The boom-and-bust market dynamics of the trucking industry can have the feel of a Greek tragedy—everyone can see the inevitable ending, but no one is free to take a different path that avoids the fall. Worse yet, the end restarts the cycle.
When shippers demand more capacity, market prices skyrocket. Carriers, taking the new demand as permanent, buy new trucks and add drivers. Demand inevitably softens and the bottom falls out of prices, similar to what is happening now. According to the CASS Truckload Price Index, prices have tumbled 15% from a year ago.
This cycle doesn’t quite compare to the story of Prometheus, the mythical god whose punishment for gifting humans with fire was to have his liver eaten, regenerated, and eaten again every day for eternity in the depths of Hades. Nonetheless, the trucking industry can feel similarly bound to repeat its market-driven sequence.
Furthermore, a fundamental tradeoff between safety and capacity adds another subplot to the trucking tragedy. Indeed, a growing body of supply chain research indicates that safety regulations limit the fluid entry and exit of drivers required for prices to stabilize.
The trucking industry is strongly procyclical, meaning it is closely tied to overall economic performance. As consumers spend, the need for transport increases. There’s a multiplier effect with this spending, too, because each dollar of final consumption spending involves multiple moves for products within the supply chain.
