Truckload capacity trends in 2014 are worth watching, say industry stakeholders

Keeping an eye on over-the-road capacity at its current levels and speculating on what its future levels may be has become more than a passing interest for freight transportation and supply chain stakeholders.

With undertones of economic optimism afloat, coupled with an ongoing regulatory drag in the trucking industry, there is more than enough to pay attention to for shippers and carriers alike. Noel Perry, senior consultant at freight transportation consultancy FTR says paying attention to the general economy is where the assessment regarding future capacity really begins.

“There are two main concerns,” said Perry. “With the exception of the third quarter of 2013, the economy has not truly accelerated in the last couple of years, and the multipliers on GDP that produce truck freight are relatively low and the combination of a relatively slow economy relatively low multipliers indicate trucking will grow between 2-3 percent [in 2014] on a base case.”

On top of that is the impact of motor carrier drivers’ Hours-of-Service (HOS) rules, which took effect on July 1 and have subsequently been blasted by many shippers and carriers whom note the regulations have been a production killer to varying degrees.

But Perry maintains that the true impact is still unclear, with some industry stakeholders indicating the new rules are having more of an effect than most realize, as the truckload market has been relatively tight and become tighter over the last four-to-five months, with the potential for that to continue at least through the first half of 2014, as there is a bit of a regulatory lag at the moment.

“What that says is that rates could head up somewhere between 3-to-5 percent (excluding fuel), but the real story in 2014 is the upside exposure as it is possible the economy will grow more rapidly,” explained Perry, and when it does historically, freight has grown by double digits.”

If the close to 4 percent (3.6 percent) GDP growth continues for two-to-three quarters, Perry said that would translate into freight growth in the 9-to-12 percent range, adding that type of growth stress on capacity, which is very tight and almost has no margin for error, could portend a return to 2004 if that growth were to come to fruition, as rates in 2004 climbed 6-to-8 percent following a period of sustained economic growth.

Were that to happen, fleets would begin ordering additional trucks as a result of increased capacity rather than on a replacement level, with Perry noting that substantial production increases would serve as the driver for that.

From a provider perspective, with the economy at its current levels, capacity has became tighter to obtain as of late last year, according to Tom Nightingale, president, transportation logistics, for Genco, a Pittsburgh-based 3PL.

“It has gotten a little bit tighter, and it has gotten a little bit harder to get volume and active capacity for our customers,” he said. “It takes more phone calls and effort than it has before.”

As for 2014, Nightingale said that there is certainly some uncertainty in the growth rate, but he expects capacity to be tight as the ‘long tail’ of HOS takes hold, coupled with a annualized truck tonnage growth rate he expects to be in the 5 percent range, which is consistent with the estimate provided by FTR’s Perry, which he explained makes for a pretty tight market.

Recent data in a carrier survey from Transport Capital Partners (TCP) differs from Genco’s Nightingale in that it expects capacity to increase materially.

TCP said that the HOS rules have led to “fewer hours per day utilization of equipment,” with “carriers being pushed to increase capacity and raise driver pay.” Based on its survey data, TCP said the number of carriers indicating they do not intend to add capacity continues to trend down and is at 27 percent, its lowest-ever recorded level.

And TCP added that for the first time ever 30 percent of surveyed carriers expect top add somewhere between 6-to-10 percent capacity, which it said does not come as a surprise as 78 percent of carriers said they lost productivity in the fourth quarter because of the new HOS rule changes.