Transport Capital Partners survey points to tight capacity and higher rates over next 12 months

While there is a current moderation in freight volumes, the consensus from a Transport Capital Partners (TCP) survey appears to be that this moderation will not be lasting, with 80 percent of survey respondents indicating trucking volumes will increase within the next 12 months.

Even though 80 percent is impressive, TCP’s previous quarterly survey cited 90 percent of respondents as stating volumes would increase within the same timeframe. The 80 percent reading, said TCP, is the third highest level reported in this survey, although TCP said this data was collected at the end of May, prior to the recent spate of negative economic news issued in recent weeks.

“Last year at this time people were feeling pretty positive,” said Lana Batts, TCP partner. “But then everything just stalled out, and I think these current numbers represent just how tenuous this whole economic recovery is.”

In May 2010, 94 percent of survey respondents were calling for higher volumes over the next 12 months.

Even though the quarterly figure is down to 80 percent, Batts described that as pretty healthy, adding that it bodes well for the industry, because the capacity that the trucking industry has today probably resembles the capacity situation from February 2008, when TCP first began collecting this data.

And with very few carriers planning to add capacity, the TCP survey found that the second half of this year will show an increased capacity gap, with only 32 percent larger carriers—over $25 million in revenue—no expected to increase capacity, coupled with 24 percent of smaller carriers expecting to do the same.

Another 39 percent are planning to add some capacity and another 25 percent plan to acquire contractors. Roughly 85 percent of larger carriers have been able to access credit to fund capacity expansions, while 80 percent of smaller carriers have. TCP said the fact that about 20 percent of smaller carriers cannot access reasonable credit is troubling.

Even though the capacity situation remains a cause for concern, Batts said that does not change the fact that as volumes go down, rates for shippers will continue to go up. The TCP survey bears this out, too, with nearly 90 percent of carriers expecting rates to go up over the next 12 months compared to the last 12 months. And TCP said this survey reflects the first time that respondents indicated rates were not likely to decrease since the question was initially asked in these surveys in the first quarter of 2009.

They added that this is not a huge surprise as the supply and demand equilibrium continues to favor carriers in this market, with few capacity gains expected and slow economic growth still occurring in terms of GDP.

“Carriers today are not interested in adding capacity, because rates today are about equal to what they were in 2006,” said Batts. “The price of a truck has gone up from $80,000 to $120,000 and fuel is up, too. Everything is more expensive, and the industry is still charging 2006 rates. It is not sustainable. Trucking is not as easy of a business to get into as it was before.”

Batts added that even though new Class 8 orders are up, it does not even begin to approach the replacement level truly needed for trucks that have exited the industry over the last five years.