Trucking news: Transport Capital Partners’ survey indicates trucking industry is on the right road

As the trucking market continues a gradual recovery—despite some recent downward economic indicators—a recent survey from Transport Capital Partners (TCP) indicates that overall market conditions are heading in the right direction.

The firm’s Second 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, TCP found that 88 percent of carriers expect volumes to increase. And that figure grows for larger carriers (with revenues of $25 million or more), with more than 90 percent expecting higher volumes over that same timeframe compared to 80 percent of smaller carriers.

“It is fair to say that most people think the next 12 months will be better,” said TCP Partner Lana Batts in an interview. “It really is only going to take a slight increase in tonnage for there to be a capacity crunch, because carriers did not buy trucks in 2008 and 2009. And the trucks they are buying in 2010…are replacement vehicles and not added capacity vehicles. So they are pretty optimistic that even if volumes improve slightly everything is relative with the sequential and annual gains we are seeing.”

What’s more, Batts explained that this situation exemplifies how there is a genuine understanding in the industry that capacity is severely restrained, with no real expectations of carriers adding capacity in a meaningful way anytime soon. To illustrate this point, Batts said it is a simple fact that carriers can be more profitable by raising rates, rather than adding trucks.

Even though capacity is tight at the moment that does not mean that it will remain that way. And there is increased momentum in industry circles that a significant driving shortage is on the way. Nearly two-thirds of TCP’s survey respondents said they are already experiencing a driver shortage, and nearly 75 percent of larger carriers said they are experiencing a driver shortage, while about half of smaller carriers are seemingly having less trouble finding drivers, according to TCP.

Adding to the driver shortage issue is CSA 2010, a Federal Motor Carrier Safety Administration-backed legislation, dubbed CSA 2010, which will dictate how the federal government rates trucking companies and drivers. It will be rolled out in November and continue in phases into 2011. The FMCSA decided to delay it due to concerns from the trucking industry over fairness concerns.

“If a carrier adds a truck, there is a question of finding a driver qualified enough not to bring down the carrier’s overall score, so adding marginal drivers is not going to be an option in this recovery that was there in 2005 and 2006,” said Batts.

Rates, rates, rates: While shippers had the upper hand on pricing during the downturn, things have clearly changed since the economy started to improve during the second half of 2009.

In the survey, TCP found that 44 percent of respondents reported consistency in rates compared to 55 percent in the first quarter, while 85 percent said rates were down a year ago. And 53 percent or larger carriers said rates were up in the second quarter compared to 33 percent of smaller carriers.

And even though there are signs that the inventory build-up is slowing down, along with slower consumer spending, Batts maintains rates are likely to continue going up.

“It does not take a huge tonnage increase to start a capacity crunch,” said Batts. “Rates will go up, because the capacity is not going to be there. And I don’t see anybody adding any real capacity until maybe the end of 2011; that still depends on whether a carrier can find qualified drivers.”

When it comes to rates, there is what Batts called a cascading effect, driven by spot market rates, which have seen solid increases of late prior to stabilizing in the last month. This is where increases first appear, according to Batts, as motor carrier equipment tends to gravitate to the spot market. Then carriers go to shippers with whom they have contracts to get increases on specific lanes instead of renegotiating an entire contract.

Credit availability: Since the Wall Street/financial market crisis of 2008, credit availability has been limited for many carriers. TCP found that two-thirds of carriers think credit availability will remain the same in the next six months, with a quarter expecting improvement and one-sixth expecting credit to tighten. Meanwhile, roughly two-thirds of large and small carriers expect credit availability to remain the same. And 22 percent of larger carriers expect credit availability to improve compared to 11 percent of smaller carriers. About 25 percent of smaller carriers expect credit availability to tighten.

“The smaller carriers are more likely to feel this,” said Batts.