Trucking rates poised to continue upwards, according to Transport Capital Partners’ survey
March 18, 2011 - LM Editorial
Even though the trucking industry appears to benefit from relatively healthy volume growth, there are enough obstacles in the way to make its future outlook somewhat cloudy. That is the consensus of a recent survey from Transport Capital Partners (TCP).
TCP’s Fourth Quarter Business Expectations Survey typically polls about 200 trucking executives on various industry-related topics to gain insight into what the market is thinking about on different issues, including demand, government regulations, capacity, and, especially of late, oil and gas prices, among others.
Some of the survey’s chief findings included two-thirds of executives indicating they are optimistic about growth in 2011, when it comes to volume and rate increases, and 45 percent of carriers stating they are interested in making an acquisition in the next 18 months, coupled with about 1 in 5 carriers showing interest in selling their business.
Another main theme was how capacity has been tightening, due to things like bankruptcies, exporting of used equipment, and fewer new truck purchases, according to TCP.
“Carriers are optimistic, because the economy is going to improve, but that depends on Congress and Wall Street not doing things that are not smart,” said TCP Partner Lana Batts. “Barring factors that nobody can control, carriers are feeling pretty good. The other side of that is capacity is so constrained, with carrier not buying replacement vehicles over the last three years and not expanding their fleets. As a result, the old law of supply and demand is going to play out. When capacity does expand, rates do go up.”
These rate increases, said Batts, are already occurring and are very apparent on the spot market, too. What this means for shippers is that motor carriers have no interest in adding capacity at this point.
Instead, she explained, they need to replace old trucks, because replacement costs for older vehicles are very high, and the actual amount of capacity carriers truly want to increase is miniscule. This is due to the fact that truck buying activity was quelled in 2008-to-2010, with the majority of truck buying activity occurring being allocated for replacement trucks only to a large degree.
“What the motor carrier industry is saying is ‘I have to take care of my balance sheet first,’” explained Batts. “And the fastest way to do that is by increasing rates, not by adding trucks. The reality is trucks today cost $120,000, whereas in 2006 it would have costs $70,000-to-$80,000. Today we are still seeing 2006 rates, which defeats the purpose of adding trucks if 2006 rates are still in effect.”
What’s more, the impact of CSA on truck buying activity and capacity is also significant. Batts said that a portion of carriers that received CSA-related warning letters from the Department of Transportation will shut down, resulting in lost capacity, coupled with low driver ratings, too.
And the heavily-contested DOT proposal to cut back on available driving time from 11 hours per day to ten also will remove capacity. This capacity will not simply be replaced by adding more trucks, according to Batts. Instead, rates will be raised.
On top of this are fuel prices that are flirting with $4 per gallon for diesel. If carriers slow down from 68 PMH to 63 MPH, it essentially removes four percent of available capacity, said Batts.
“All of these things coming together for the trucking industry are creating a perfect storm in a positive sense, with the only way for rates to go being up,” said Batts.
For related articles, please click here.
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!