Trucking booming, shippers brace for “mid-single digit” rate hikes

Trucking is booming. And in case you haven’t noticed, just check your last freight bill from your friendly neighborhood freight carrier.
  
The top 25 truckload carriers enjoyed a 13.2 percent year-over-year increase in revenue in 2011, according to statistics compiled for LM by SJ Consulting. About half that increased revenue was due to rising fuel surcharges, but not all the increase can be attributed to just that, said Satish Jindel, principal of SJ Consulting.
  
And Jindel is forecasting more of the same for this year as well.
  
“The bigger truckload carriers will be seeking rate increases because there are fewer bigger carriers and those who are there have a value prop because you can’t add capacity—drivers are tight,” he said. “That does speak well to increase margins.”
  
The increase among the largest truckload (TL) carriers showed double-digit gains for 11 of the top 13 members. Swift, which is the largest TL carrier, jumped 14.8 percent to just over $3 billion in revenue. C.R. England, the ninth-largest TL carrier, jumped 21.4 percent to join the $1 billion carrier club. CRST International, No. 11 on the TL list, enjoyed a 25 percent spurt in revenue, partially due to its purchase of Specialized Transportation Inc. (STI) last July.
  
And it’s not just in truckload, the $300 billion sector that by far is the largest component of for-hire trucking. The market share of 10 biggest less-than-truckload (LTL) truckers rose from 68 to 73 percent, with 10 LTL carriers now enjoying revenue in excess of $1 billion.

The top 25 LTL carriers enjoyed an 11.7 percent year-over-year rise in revenue in 2011 and now account for the lion’s share of the $30.6 billion LTL sector.
 
Old Dominion Freight Line, the most profitable publicly held LTL carrier, enjoyed the biggest jump—25.7 percent—to top $1.7 billion in revenue last year. ODFL has recently said it would like to double its revenue in three years as it tries to become a $3 billion carrier.
  
Other big gainers were No. 4 UPS Freight (14.8 percent), No. 6 ABF Freight System (14.3 percent), No. 7 Estes Express (15.3 percent) and No. 9 YRC Regional (including Holland, Reddaway and New Penn, which jumped 15.5 percent, according to SJC figures).
  
Louisiana-based Saia joined the LTL “billion-dollar club,” increasing sales 14.1 percent in 2011 to $1.03 billion, and now ranks No. 10 on the LTL list. The revenue of those 10 LTL giants represented 73 percent of the total LTL market last year, compared with 68 percent in 2010.
     
“Conditions on the LTL said are slightly different, Jindel said, because a lot of carriers can handle 10-to-15 percent extra business in the next few months.
  
“They built capacity based on peak season so in the off peak, they have extra capacity,” Jindel said. “There is still an opportunity to get rate increases. Some larger carriers should seek larger increases because they need to recapitalize their businesses and provide decent returns to shareholders.”
  
So what does it mean for shippers? Short version: higher rates now for sure, perhaps fewer choices among carriers down the road.
    
John Larkin, trucking analyst for Stifel Nicolauss said that much of the low double digit growth carriers enjoyed were through price increases to erase the rate decreases taken in 2008 and 2009 during the depth of the Great Recession. Rising fuel surcharges, now more than 40 percent in TL and more than 20 percent LTL, are another factor.
  
“Still there is a small amount of core growth in Satish’s numbers as carriers try to respond to the desire of shippers to consolidate their carrier relationships to a smaller number of larger, better capitalized, better systematized, better equipped, safer, more time definite carriers,” Larkin noted.
    
Larkin calls this phenomenon “Core Carrier Consolidation – Part Deux.”
    
The original core carrier concept began during the late 1980s and 1990s, following the go-go growth of the non-union truckload sector following deregulation in 1980. Shippers, once inundated by carrier choices, found it more economical and sensible to narrow down their choices to a “core” group of 15 to 20 carriers, both TL and LTL, national and regional with perhaps an express carrier or two also in the mix.
 
The difference now is the willingness some carriers appear to have for “exchanging rate increases for increases in capacity commitments from these larger carriers,” Larkin said.
  
“Presumably this will put even more pressure on the smaller carriers that are already struggling with fleet age, credit availability (or lack thereof), driver recruiting and retention, CSA compliance, shipper service requirements, and the rest,” he said.
  
“We look for these core carriers to add selected incremental equipment in 2012 in order to meet shipper requirements provided that shipper pricing is sufficient to allow an adequate return on invested capital,” Larkin added.
 
He is predicting TL and LTL revenue growth will continue in 2012, with low- to mid-single digit rate increases, low- to mid-single digit fleet growth in quite a few cases, and whatever fuel surcharge increase is dictated by actual fuel prices.
  
Truck capacity shed during the Great Recession is generally not coming back, Larkin noted, as most new truck purchases are replacements. Safety-related regulations are in various stages of implementation and development and could severely reduce driver supply while significantly impinging on driver/equipment productivity.

Bottom line: Truck pricing continues to more than offset rising labor, equipment and fuel costs. For the first time in at least five years, it’s a good time to be in trucking.