How Industry Leaders Interpret Overcapacity Data: The Exit Wave Is Nearing Its End, While Demand Still Awaits Recovery

The number of business exits in the freight industry is gradually catching up with the influx during the pandemic, but carriers still expect further market improvement. Since July 2020, a large number of businesses entered the market to take advantage of high freight rates, and the subsequent wave of revocations helped balance the market, with recent months showing more positive signs.

"It feels like the wave of capacity exits may have been gradually absorbed, and we are starting to see the market return to more normal levels," said Dean Croke, chief analyst at DAT, in an interview with Trucking Dive in February. He noted that the number of revocations in January 2024 slowed year over year.

Despite significant changes, market exits have not yet fully returned to pre-pandemic normal levels. Industry leaders have been closely monitoring how these entries and exits interact, and large carriers have also discussed this matter multiple times on earnings calls.

However, industry leaders point out that weekly, monthly, and quarterly snapshots, while highlighting the surge and exit of capacity in the freight market, do not show the full picture. Trucking Dive's analysis further reveals what these changes might mean and suggests that the industry's scale may be starting to shift.

Main narrative: Small businesses show unexpected resilience

Freight industry leaders are both frustrated and surprised by the slow pace of market adjustment. In previous quarters with weak demand, executives questioned how long the market oversupply could last.

"We have been talking about the stubbornness of capacity exits," said Mark Rourke, president and CEO of Schneider National, on the fourth-quarter earnings call on February 1, adding that executives "expected exits to be faster and larger."

Other carriers have also commented on the viability of small freight businesses. Werner Enterprises CEO Derek Leathers has noted that peak freight rates in 2022, federal stimulus measures, and lower fuel costs were factors supporting this resilience.

Additionally, Werner Enterprises has repeatedly noted that weekly exits have continued for over a year. Nathan Meisgeier, president and chief legal officer of Werner, discussed this at a Citi investor conference in February, noting that weekly exits have continued for 72 consecutive weeks.

However, on the first-quarter earnings call in early February, the carrier also noted a significant recent decline in new activations.

Rethinking what snapshot data means

The dataset is not perfect. Former Knight-Swift CEO and President David Jackson said on a January earnings call that monthly snapshots can be particularly problematic due to volatility. He noted that revocations may surge at the end of the month because some carriers cannot find insurance.

Jackson also said that monthly changes may not reflect the broader trends the company has observed over time. "Not all data is equally important," he said.

Similarly, the Federal Motor Carrier Safety Administration notes in its data that a business may hold multiple operating authorities, and analysts also point out that fleet size is not necessarily captured.

The current comparison is not the only consideration. Even if monthly snapshots shift from net exits to net additions, that is just one segment of a long-term trend.

Different perspectives provide more insight into capacity changes

Another approach is to examine the rate of change in grants and revocations, or the total capacity gained or lost by the industry.

For example, by looking at cumulative totals (excluding reinstatements), the data shows that revocations have actually exceeded grants in 2024, a trend that continues to this day.

"I think unless you look at cumulative changes, you will misinterpret the data," said Avery Vise, vice president of freight at FTR, in an email. "For example, except for February, the recent net reductions are the highest on record. But if you don't account for the abnormal period of new entries between mid-2020 and mid-2022, you miss the scale of capacity additions."

But Vise noted that changes in wage employment must also be considered. Jason Miller of Michigan State University does exactly that, pointing out that wage data helps show a "slow and steady trickle" of rebalancing. The supply chain professor and interim department chair highlighted his findings in a mid-March LinkedIn post, stating that these government statistics are also more reliable in assessing capacity.

Industry leaders say demand has not yet arrived

Although revocation data may indicate momentum for fleets expecting the market to turn in their favor, analysts warn that demand has not yet recovered.

DAT's Croke noted that capacity exits have never reversed market cycles. "It's always the demand side that does the work," he said.

When looking at other capacity indicators, such as seasonally adjusted trucking employment data and other employment data, Miller said in an email that overall supply has not declined significantly.

Miller noted on February 23 that spot market cycle indicators are in bearish territory in terms of pricing, and adjusted hired truck ton-miles have not declined significantly, indicating "evidence that there is still a lot of excess capacity in the market."

"We have not yet seen a rebound in trucking demand," he wrote.

Werner's Meisgeier expressed a similar view at the Citi conference: "It feels like we still need that last little push to reach a true balance between supply and demand."