2015 State of Logistics Truckload: Demand growth flat, but tightening capacity means higher rates

The $337 billion truckload sector—the largest single piece of the trucking market—now accounts for about 37 percent of total freight transportation spending in the U.S. According to industry analysts, the truckload industry has done a “credible job” in recent years of diversifying their offerings and moving away from the idea that 53-foot dry van truckload should be treated as a commodity rather than a customized service.

“Shippers are increasingly willing to pay a premium for difficult to provide truckload services,” says John Larkin, a veteran trucking analyst for Stifel Inc. “Truckload services are no longer viewed as generic. Instead, they’re fueling the low inventory, high service retail and industrial economy.”

And this diversification by the big, non-union operations such as Swift Transportation, Schneider National, Werner Enterprises and hundreds of other well-run TL carriers has translated into very strong year-over-year improvements in yields as seen by revenue per loaded mile. After increasing sequentially during every quarter last year, culminating with a 7 percent rise in yield in the fourth quarter, that trend continued anew the first quarter this year with a 3.9 percent year-over-year yield increase.

According to Larkin, supply and demand are “looser” than a year ago, but he says that relative to TL markets in the past 20 years, TL capacity is still “rather tight” and shippers should be prepared to pay more for capacity as we head into the peak freight season.

And while demand growth has slacked off, tight capacity has enabled carriers to obtain meaningful rate increases, which should continue throughout this year, according to an analysis by SJ Consulting.

Unfortunately for the carriers, they’re not keeping the lion’s share of those rate increases. Rising costs for equipment and insurance are eating into profits. However, the major drain is the ever-increasing driver shortage, which is resulting in hefty driver pay increases.

For example, Watkins and Shepard Trucking, a TL carrier based in Missoula, Mont., instituted a 10 percent across the board pay increase, effective June 1. That followed a smaller pay increase last fall. Similarly, Bay & Bay Transportation in Rosemount, Minn., recently raised base paid to between 41 and 45 cents per mile, depending on experience. It’s the carrier’s second driver pay increase in a year.

Larkin says that this year’s tight TL market just foreshadows what’s coming down the pike. Because of tightening federal safety regulations such as CSA and stricter drug and alcohol screening, the available pool of truck drivers will dwindle even more. In fact, he’s predicting “the mother of all capacity crunches” to begin in 2017.

When that happens, shippers should expect TL carriers to have leverage to allocate capacity to their most profitable accounts in what could be the one or the more favorable TL rate environment since deregulation in 1980.

“Supply and demand are more in balance presently, which means the spot market has cooled somewhat,” says Larkin. “But the contract market remains rather healthy, if not a tad less robust than in 2014.”

Bottom line for TL shippers: Expect rate increases in the 2 percent to 5 percent range, but varying depending on specific lanes and carrier relationships.