Transport Capital Partners Q1 survey examines expectations for 2012 capacity, rates, and volume

Data from Transport Capital Partners’ (TCP) quarterly Business Expectation Survey found that while the economy is rebounding, that is not necessarily a panacea for trucking carriers to increase capacity.

In its survey, which polled roughly 120 carrier executives, TCP found that 65 percent of surveyed carriers are planning to add capacity in 2012, which is down from 73 percent in a November 2011 TCP survey. And it noted that 25 percent of carriers plan to add 6-to-10 percent of capacity also down from November, which was pegged at 18 percent.

“These numbers are not too surprising,” said Lana Batts, TCP partner, in an interview. “I am a little surprised that carriers are still not raising rates to the level I thought they were going to be doing at this point, given that they are not adding much capacity and all think rates are going to go up. It is surprising that rates have not gone up as much as expected. I don’t know if that is due to carriers being locked into contracts they cannot get out of or something else.”

TCP data indicated that for carriers planning to add capacity, nearly 25 percent said it would be through company equipment financed, leased at 9.6 percent, or cash at 7 percent. And less than 20 percent are reliant on independent contractors to add capacity, due to being impacted by the Great Recession, which in turn forced carriers to use company equipment, coupled with low interest rates and anecdotal reports of dedicated fleet activity rising, according to TCP.

Also factoring into the capacity outlook are things on the regulatory front like Hours-of-Service, Electronic On Board Recorders, and CSA, among others.

“It is not too early for carriers to worry about these things, and it is part of the reason why carriers are a little hesitant to add capacity,” explained Batts. “They are wondering if they are going to be able to find trucks and drivers, which is a valid concern. Many carriers have a large enough percentage of their fleets parked and are very concerned about it. They will get drivers coming in that have run out of unemployment, and they are concerned that a driver will come in for a few months and then quit and go back on unemployment. They have seen it happen before.”

In its survey, TCP also found that carriers are optimistic about 2012, with 77 percent expecting higher volumes and 2.6 percent expecting volumes to fall. And 83 percent of larger carriers—with revenues over $25 million—expect higher 2012 volumes, compared to 67 percent of smaller carriers with revenues below $25 million.

TCP explained that carriers with fewer customers and regional locations “may see some slowness in recovery” compared to larger and more national carriers.

Looking at rates, TCP found that 77 percent of surveyed carriers expect 2012 rates to rise, with 20 percent expecting them to stay the same. The firm said this reflects underlying cost pressures like equipment, drivers, maintenance, and fuel, as well as increased demand pressures, with capacity not being expanded and driver supply constraints that can subsequently lead to rate hikes.

But while rates are expected to increase, the level of rate growth was relatively low as Batts mentioned. TCP found that 45 percent of carriers have seen rate increases over the last three months, which has been the case over the previous three quarters, with increases around 5 percent for large and small carriers.

While nearly 80 percent of respondents expect higher volumes and rate gains in 2012, Batts said it remains to be determined exactly how much rates can and should go up.

“What we are seeing is…rates are more in the 5 percent range and it is unrealistic for them to be in the ten percent range,” she said. “Rates in the low-to-middle single digit range are not enough to maintain driver salaries of $60,000-to-$70,000 cannot get you there, and that encourages driver turnover for more money per mile.”