There is more than meets the eye in trucking market in FTR’s Trucking Conditions Index

The most recent edition of the Trucking Conditions Index from freight transportation consultancy FTR dropped from July to August, with the firm explaining that the August reading “is not wholly reflective of the current environment for truckers.”

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 10 indicating that volumes, prices and margin are in a good range for carriers.

The August reading of 1.41 was down from July’s 5.75, which topped June’s 4.54. Both May and June were in the 7.0 range.

FTR explained that the TCI mainly keeps tabs on contract markets, which it said have largely been unaffected by the tightness in the truckload market, coupled with the after effects of Hurricanes Harvey and Irma having the most impact in September.

“The truck market is currently in the middle of a significant change in conditions,” said FTR COO Jonathan Starks in a statement. “While the recent weather events made it feel like it happened all at once, spot markets have actually been moving in this direction for the past year. Load activity was rising, truck availability was falling, and rates were already up 20% y/y before the storms hit. Spot market rates are a leading indicator; and, although there is a lag, contract markets are starting to follow suit. Shippers are now taking notice and are getting worried about dealing with double-digit rate increases as we head towards bid season.”

The possibility of double-digit increases for contract truckload rates in 2018 continues to receive a fair amount of attention in industry circles.

Cowen analyst Jason Seidl wrote in a research note that private trucking & 3PL company executives are bullish about the current market outlook from a pricing perspective.

“They're expecting to raise contract rates between 5% and 15% in 2018,” he wrote. “For the first time in about three years, trucking companies unquestionably have the upper hand in 2018 bid negotiations.”

Themes of the tight truckload market, the ongoing driver shortage’s impact on available capacity, coming regulations (ELD) are all top of mind for shippers, and it is not hard to see why that is, and is likely to remain, the case for the foreseeable future.

Sentiment akin to that was echoed by Noel Perry, an economist at FTR and Truckstop.com, when he said that 2018 is likely to be a “nasty year” at the FTR conference.

At last month’s CSCMP Edge conference, Werner Enterprises President and CEO Derek Leathers said that rates on a national basis are still trailing levels they saw years ago.

“Over that several year period, driver wages nationally are up by double-digits and in our fleet they are up 17% in the last two years alone,” he said. “Inland costs are up significantly, and there is no reason to believe to continue to do that. If you look at second quarter publicly available information from public carriers…even with some recent relief on the rate side, they are still making considerably less money than the year prior. If you look at the overall [expenses] required to reinvest into a trucking company, you certainly cannot get there at 3-4% or even 7% margins. Fundamentally, the math does not lie. There is a need for rate relief in order for carriers to be able to invest back into the business and to be able to haul freight for their customers. How much that will be will probably be dependent on many different factors such as the starting point for a particular rate, where it is going regionally, how is that rate treated during a downslide. There are a multitude of things that can affect it. Where it will go I don’t know, but I am quite confident they are not going down.”