The most recent edition of the Trucking Conditions Index (TCI) issued this week by freight transportation consultancy FTR remained in familiar territory, as market conditions appeared to show signs of stabilization at the end of 2016 heading into 2017.
The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight.
According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are in a good range for carriers.
For November, the most recent month for which data is available, the TCI was 4.38, which is in line with October’s 4.58. FTR observed that the TCI is consistent with the firm’s forecasts of steadily improving trucking conditions early into the New Year.
And looking ahead, FTR expects the TCI to hit positive double digits by the end of 2017, citing things like expectations for stronger demand and the electronic logging device (ELD) mandate expected to tighten capacity.
“Cautious optimism is in place as we begin 2017,” said FTR COO Jonathan Starks in a statement. “Truckers have dealt with profound political change, regulations published, regulations struck down, and upward movement in truck volumes and pricing. All of this occurred within the last 3 months of 2016. Now, imagine what the next 12 months will bring. We have fairly good certainty that ELD will be implemented at the end of the year, but the incoming administration’s impact on infrastructure, taxes, and regulations are still up for debate. All in all, trucking is starting the year off with much better footing than we had one year ago.”
Starks added that truck utilization has improved by 3 percentage points, and the Market Demand Index (MDI) from Truckstop.com jumped by 40% to end 2016.
“The capacity situation has tightened at the same time that volumes have begun to show improvement,” he said. “The outlook for pricing gains has finally shifted back toward the carriers. That is a welcome relief after the weakness seen over the last year and a half.”
Even though the market outlook is showing signs of optimism, the freight environment remains in a pattern of largely flat growth, including a better than expected third quarter GDP estimated approaching 3.5 percent, decent job growth figures, and signs of increased consumer spending.
But these alone have not been consistent enough to translate into sustained economic growth, coupled with excess trucking capacity still being hampered by elevated inventories, which have shown signs of heading down recently.
This sentiment was in line with commentary from American Trucking Associations Chief Economist Bob Costello who said in December that retail sales are good, the housing market is solid, and the inventory overhang throughout the supply chain is coming down, all of which will help support truck freight volumes in 2017.
Stifel analyst John Larkin said in the LM 2017 Rate Outlook that this year may lead to evidence of the tight supply/demand dynamic flexing its muscles as early as the second quarter volume peak, with truckload carriers approaching shippers asking for price increases.
“They will suggest that, absent price increases, capacity might well be disproportionately allocated to customers that have already provided relief with the much-needed rate hikes,” he said.