FTR’s Trucking Conditions Index highlights impact of tight capacity in trucking market

Not surprisingly, tight capacity was the major theme of the most recent edition of the Trucking Conditions Index (TCI) issued by freight transportation consultancy FTR this week.

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 February, the most recent month for which data is available, the TCI was 7.54, which was down from January’s 8.82, which FTR said was positive for trucking fleets and also a warning for shippers looking for available trucking capacity to move their freight.

While the TCI was down, FTR made it clear that the harsh winter weather “likely had a bigger impact and is not getting picked up in the data,” explaining that when adjusted for weather, the TCI would likely be higher than 10. That type of reading would make for the tightest truck market recorded, the firm said, and it also noted that this is the range it expects the TCI to remain in for the remainder of the year, spurred on by shipper demand for trucks and regulations like HOS and CSA impacting the amount of available capacity.

“The most recent weekly spot market data shows that the spring thaw has come to truck demand with spot market capacity up and load activity down slightly - a plateau versus the last couple of months when both demand and pricing spiked while capacity was severely constrained,” said FTR Director of Transportation Analysis Jonathan Starks in a statement. “Both carriers and shippers have to be on the lookout for a potential tipping point when freight demand is able to keep the current high level of truck use well into the summer months. Such an environment would necessitate shippers bidding up rates to maintain secure capacity during the fall shipping season.”

Starks added that FTR continues to evaluate the freight environment and currently sees enough moderation in truck demand to get through the year without a crisis while cautioning it would only take a relatively modest and short uptick in the industrial sector for capacity to tighten significantly further. He also said it paying close attention to manufacturing data is needed to see if the current capacity situation remains intact.

Myriad industry stakeholders have told LM that the current capacity outlook is as tight as it has been in a number of years, due to both this winter as well as volume increases on top of ongoing regulatory drag and a very challenging situation in regards to driver recruiting.

“What is happening now when it comes to the lack of available capacity is something we have not really seen before, at least not on this level,” a 3PL executive said in an interview.

And a research note from BB&T Capital Markets Analyst Thom Albrecht took that sentiment a step further.

“’Where have all the trucks gone?’ is one question we often get asked,” Albrecht wrote. “Everyone knows weather’s disruptive influence, but there is an underlying sense that more has happened. We believe the cold weather has permanently ‘killed’ some capacity, with trucks too old and too broken down to be repaired. Relative to warranty work, most dealerships have a huge backlog of work and it may take 2, 3 or 4 days to get a truck in and out of a shop. Many 2010-2011 engines haven’t performed well from the get-go and cold temps have exacerbated that, another reason healthy fleets are replacing trucks from those model years. Also, bio-diesel does poor in the weather. On top of that, many fleets can’t afford the maintenance work nor the lost revenues, likely one reason in-house brokerage operations are seeing a shrinkage in the number of failed carriers in recent months. The growing complexity of new trucks comes when there is a shortage of technicians. All told, winter’s toll may have permanently removed 2% to 3% of capacity.”