FTR Transportation Conference trucking panel offers up insights about trucking market

The current state of the truckload market is currently being viewed as mostly normal with bits of fluctuation mixed in as well, according to panelists on a trucking panel at last week’s FTR Transportation Conference in Indianapolis.

The wide-ranging discussion hit upon myriad industry-specific topics, including current market conditions, demand, capacity, and the impact of regulations, among other topics.

From a shipper perspective, Jon Meier, Truck Lead for Cargill, noted that his business is a bit “recession-proof,” due to being a provider of food and agricultural products but added that he sees normal activity for seasonal aspects of Cargill’s refrigerated business.

On the spot market, Don Thornton, senior vice president at DAT-TransCore, explained that compared to a year ago at this time things are fairly flat, where there is usually a bit of a dip in demand around this time of year.

“Things are actually growing, which is a bit unusual for this time of year,” said Thornton.

That view was confirmed by John Vesco, executive vice president for Comtrak, a subsidiary of intermodal services provider, the Hub Group.

Around this time of year, Vesco explained that Comtrak typically sees a bit of a peak in demand as retailers stock up for the holidays.

“This Peak is about in the middle compared to the last ten years or so,” he said. “One thing that is unique is that we are seeing some ebbs and flows when looking at it holistically over the last several weeks and months, with a bit more volatility than we have seen in years past. I am not sure exactly what is driving that although there have been some issues with short-term capacity but overall it has been average.”

In summing up the trucking market on a year-to-date basis, Jim Tucker, president and COO of Tucker Company Worldwide, a global freight brokerage services provider, explained that trucking demand for the first two quarters of 2013 was very strong, followed by very soft demand in the third quarter on the spot and contact rates side of his business. He also noted that early signs for the fourth quarter, though, look very encouraging at the outset.

Looking at trucking output from a data perspective, Stifel Nicolaus analyst John Larkin observed that monthly truck tonnage data from the American Trucking Associations can sometimes be misleading due in part to a change in the mix of the economy, with many carriers shifting away from dry van to more of a heavy haul mix of activity related to energy exploration in places like Texas and North Dakota.

“Things don’t appear to be as strong as the truck tonnage numbers would seem to indicate,” he said. “Since 2008-2009, it seems like there is a new pattern emerging where the traditional Labor Day to Thanksgiving peak is not as pronounced. The new peak seems to be more in the May-June time frame, when items used in the summer time like gas grills, lawnmowers, charcoal, fertilizer, and [beverages] are moving in great quantity. It is a little different dynamic than we have seen historically.”

As for the third quarter, Larkin said that July was again traditionally soft and the back-to-school season in August was muted compared to past years, but from the end of August and into September things got sequentially better, but cautioned that it is unknown as to how long that will last when that seasonal surge ends and returns to what he called a sub-trend type of pattern. 

What’s more, Larkin said the motor carrier Hours-of-Service rule, which kicked in on July 1, has yet to result in widespread capacity shortages, which were widely expected by industry stakeholders.  It has, though, led to increased spot market activity in some pockets of the country, while cutting industry productivity in the 2-to-3 percent range.

“If supply and demand had truly been imbalanced prior to July 1, you would have expected many more pockets of capacity shortages,” he said.

Looking ahead to 2014, the outlook for the year’s prospects ranged from promising to concern.

Tucker said that 2014 is viewed as having lots of potential, explaining it has been a moderate seven years for his company since the Great Recession, as his company has been actively focused on service quality and is overstaffed in preparation for what he believes will be a strong year.

Capacity issues were top of mind as a shipper for Cargill’s Meier, with the company committed to continue working with its core carriers. Due to the seasonal nature of Cargill’s business, Meier said it is “so important to forge meaningful long-term relationships with carriers.

The concerns on Wall Street, explained Larkin, are centered on the third round of Quantitative easing, which could have a negative effect on the economy. But more positively the lack of a payroll tax hike and sequestration in 2014 could make it feel better compared to 2013, while the federal deficit could rise. And with a large amount of the workforce underemployed he said it could also lead to another year of sub-trend growth, with GDP growth in the 2.0-2.2 percent range.

DAT’s Thornton said that the industry has changed somewhat in recent years, with rate growth occurring for line-haul and contracts, with decreases between January 2010 and June 2012, with flattening occurring in recent months for rates.

He added that DAT is seeing a shorter length-of-haul in its marketplace.

“The 3PL market and the truckload market has seen about a 50-mile reduction in recent years for total length-of-haul, and that is going to drive rates up a bit,” said Thornton. “You are also seeing the impacts of regulation like HOS for certain lanes resulting in 4-5 percent rate increases. It has been a little slow for shippers and brokers to react to the market, but I think there is a learning process taking place in the industry. Our best bet for 2014 is that we will see an increase at a little bit faster than GDP for rates. We are seeing demand increase in the 3PL spot market.”

Stifel’s Larkin said that in regards to demand there are a lot of different aspects of the economy that are doing quite well, including energy development, trans-border activity into and out of Mexico, the rebound of the automotive sector, and building materials.

“These sectors are quite strong compared to the more generic or broad dry van retail space, which is more flat,” he said. “The dry van carriers are not terribly optimistic about the retail dry van market growing in 2014 so they are trying to offer unique packaging services to try and gain market share in a world where the smaller carriers are really struggling with regulations and cost of capital, and capital availability.”