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Top 50 trucking companies: Emerging from the shadows

Leading trucking company CEOs say it’s time to pay down debt and put profit to work to recapitalize their businesses - all at a time of tightening capacity. For shippers, the days of rock bottom rates could be long gone.

“Customers understand it…Yield improvement is very important right now. It’s been three or four tough years, and we need to rebound in terms of profitability in order to reinvest in our businesses.” - Bill Logue, President and CEO of FedEx Freight

By John D. Schulz, Contributing Editor
April 01, 2011

Road ahead
The coming capacity crunch and carriers’ new found emphasis on profits means only one thing for shippers: higher freight rates.

On the TL side, analysts and executives say privately that shippers can expect rate increases of perhaps as much as 7 percent to 8 percent, net of fuel surcharges. On the LTL side, which has slightly more excess capacity currently, rate increases of 3 percent to 5 percent are more likely.

“As our volumes grow, we’re working on the yield side,” says FedEx Freight’s Logue. “Increasingly, we are looking at every account and asking ourselves: ‘Is this a good long-term decision for this shipper?’ I would say everybody is in that same situation.”

Con-way’s Stotlar couldn’t agree more. “Everybody is committed to getting margins back to recapitalize their fleets,” he says. “The industry seems to be in lock step that we have to improve margins. We were successful in getting rate increases last year and that continues into 2011.”

NEMF’s Shevell says rate increases are essential for carrier survival in an era when a new Class-8 truck costs about $125,000, diesel is threatening to break the $4 plateau, and increased wages for qualified drivers are necessary as government programs such as CSA 2010 threaten to eliminate as many as 150,000 unsafe long-haul drivers.

The days of shippers beating up their carriers over rates and then dropping them in favor of a cheaper-priced carrier are ending, Shevell predicts. “There are shippers who laugh and say we’ll give it to the next carrier, but it’s coming to a point where the next carrier will be gone too,” adds Shevell.

In fact, there’s only a few regional carriers left in the Northeast and Midwest. Shevell is warning shippers that the same mega-consolidation that has happened to airlines and railroads could be happening to trucking, which would be a disadvantage to shippers.

“When that happens, capacity is going to be tight,” Shevell warned. “The shippers who gets capacity will be the ones who have taken care of their carriers. The days of running roughshod on rates are over.”

That’s because capacity is tightening. Although it’s difficult to gauge precise trucking capacity at any time, most carriers say they are approaching the “sweet spot” when tight capacity enables them to raise rates year over year in the mid-single-digit range. This last occurred during the period from 2002-2006 when carriers say they enjoyed the best pricing power since deregulation in 1980.

“Our view is that capacity is at its equilibrium,” says Schneider’s Rourke. “The spot market is indicative of what’s available in terms of capacity. What we’re seeing is that the truckload industry appears to be at or slightly short of capacity; so there’s little doubt that rates are certainly going up.”

Schneider is predicting overall rate increases of 5 percent to 7 percent, net of any increase in fuel surcharges. Analysts agree. “It’s a positive environment for carriers,” says analyst Ross. “Pricing (discounting) got a little too aggressive the last two years. Most of those guys at the top are unprofitable, and we think there will be capacity constraints. That’s good for the carriers.”

And probably not so good for shippers - at least those shippers who have enjoyed rock-bottom freight rates the past three years.

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About the Author

John D. Schulz
Contributing Editor

John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. He is known to own the fattest Rolodex in the business, and is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis. This wise Washington owl has performed and produced at some of the highest levels of journalism in his 40-year career, mostly as a Washington newsman.

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