Transport Capital Partners’ survey data shows a promising outlook for trucking market

Trucking executives are feeling somewhat optimistic about business conditions heading into the fourth quarter, according to the results of a recent survey from Transport Capital Partners (TCP).

The firm’s Third Quarter 2010 Business Expectations Survey polled roughly 200 trucking executives on various topics to gain insight to what the market is thinking about various industry issues, including volumes, credit conditions, and driver availability, among others.

When looking at business volumes for the next 12 months compared to the last 12 months, 68 percent of carriers expect volumes to increase, compared to 88 percent in the second quarter survey. About 75 percent of larger carriers with revenues of 25 million or more expect volumes to rise over the next 12 months, while 60 percent of carriers with revenues below $25 million are also calling for higher volumes.

“The expectations are not as high as they were a quarter ago, because things have generally gotten more stable over the last quarter, which is reflected in things like unemployment numbers,” said Lana Batts, TCP partner, in an interview. “But it is still substantially higher than a year ago. The story here is that carriers are more optimistic.”

On the flip side, TCP found that only 2.3 percent of all carriers believe that volumes will decrease or the economy will fall into a double-dip recession.

Looking at rates, the survey indicated that a cumulative 63 percent saw rates increase anywhere from 5-to-15 percent over the third quarter and 4 percent reported decreases.

TCP said in its findings that with volumes rising in the third quarter, the number of carriers reporting steady rates became the majority after rising for four straight quarters. It also noted that 45 percent of respondents saw a 5 percent rate increase, with 11 percent seeing rates up 10 percent, and 7 percent having rates rise by 15 percent or more.

And 58 percent of large carriers saw a 5 percent rate increases compared to 26 percent of small carriers seeing the same hike.

While large carriers saw a 5 percent rate hike over smaller ones by a 2-1 margin in the third quarter, Batts explained that the overall rate outlook for the next 12 months is in sync with the overall volume outlook for the same time period. Seventy-four percent of larger carriers expect rate increases compared to 64% of the smaller carriers, according to TCP data.

What happens with volumes and rates has a direct effect on available capacity, said Batts.

That was evident in the data, with one-third of carriers not expecting to add any capacity in the coming months and another third expecting to add between 1 and 5 percent (nearly 35 percent saying they will not add capacity and the balance representing the 1-to-5 percent additions in capacity). Keeping capacity expansion on the low end will keep capacity in line with freight volume expectations, according to TCP.

Although most carriers do not intend to add capacity, Batts said some capacity is still being wrung out of the market.

“You don’t need to have a big increase in volume to have a capacity crunch that we are [likely] going to have,” said Batts. “Truck sales last year at 95,000 were far below the 200,000 needed to maintain capacity. It does not take much of an increase in tonnage to hit capacity.”

This is something shippers will need to pay close attention to, she said, as carriers will not add capacity “on hope” and can make more money by raising rates than adding capacity.

“Why add trucks when new trucks cost $120,000 and you are getting freight rates you got three years ago?,” asked Batts. “There is no economic incentive for motor carriers to add trucks…you have to replace aging trucks and to replace current capacity at current freight rates is a hard pill to swallow. So when shippers are looking at this they need to understand that just to maintain capacity is going to require increased freight rates, let alone add capacity.”

As a result of this, Batts said it is likely carriers are going to start selectively increasing rates on certain lanes by culling customer lists on a daily basis and determining how to get rid of the bottom 20 percent. This method, she said, will help carriers to serve shippers that can provide them with the rate they need.