Market conditions continue to favor motor carriers, according to FTR data
June 10, 2014
Strong industry fundamentals for the trucking sector appear to be intact, based on the most recent edition of the Trucking Conditions Index (TCI) recently issued by freight transportation consultancy FTR.
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 April, the most recent month for which data is available, the TCI dropped more than two points to 5.91, which FTR said was below the recent trend line but “is simply reflecting short-term fluctuations inherent in the overall measurement of trucking conditions.”
FTR explained that the current environment for carriers is positive as rates are heading up and truckload capacity remains tight. And it added that it expects truck utilization to remain above 98 percent for the foreseeable future as freight demand, tight capacity, and the effect of government regulations continue to be major industry themes that are expected to lift rates by 5 percent of more throughout the course of this year.
As has been the working thesis for the last several months, none of these developments are good news for shippers looking for available trucking capacity to move their freight, especially on the truckload side.
“Just as the truck environment continues to get back to normal, the revisions to the GDP data for Q1 [1.0 percent growth] gives everyone a moment of pause,” said Jonathan Starks, FTR Director of Transportation Analysis, in a statement. “How could we have had such a strong trucking market when the economy was apparently in decline? Part of the answer lies in the fact that goods movement was abnormal during this winter, and it likely led to a reduction in final inventories at many places. This was one of the biggest weak spots in Q1 GDP. So far, there is no indication that this has continued into Q2. The TCI took a modest hit during April but is still solidly positive and should stay higher for most of 2014. One of the main reasons for that comes from the pricing environment. Spot rates have leveled off but are still well above levels seen last year at this time. Contract rates, on the other hand, move up and down much slower as new contracts get slowly implemented over time. Trucking looks to be on very solid footing and should continue to show growth throughout 2014.”
And even though FTR expects rates to see solid gains, the Cass Freight Index report issued last week made it clear that while freight rates are not yet showing the full effect of tightening capacity, it is unlikely that the situation will continue.
“New equipment and drivers have been added to the trucking fleet, and both are increasing costs substantially (the driver shortage is pushing up the cost of recruiting, training, and retaining drivers),” wrote Rosalyn Wilson, senior business analyst with Delcan Corporation and author of the annual CSCMP State of Logistics report, in the Cass report.
She also said that going back to the beginning of the year freight expenditures are up 11.0 percent, which is below the 13.1 percent shipment increase over the same period, and indicates a competitive rate environment is intact, coupled with a fluctuating spot market in recent months and serves as a “good indicator” of the sporadic nature of capacity issues.
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