FTR’s Trucking Conditions Index trends down but still growing

Coming off of a strong October, freight transportation consultancy FTR said this week the the most recent edition of its Trucking Conditions Index (TCI) dipped down in November, the most recent month for which data is available, but still remained on the right side of growth.

According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above 10 indicating that volumes, prices and margin are in a good range for carriers.

November’s TCI reading of 5.8 was down from December’s 9.48, which was paced by a strong economy, combined with pressure from hurricane recovery and the ELD mandate, is creating a very tight market resulting in improved contract rates. 

FTR added that November’s reading was at a “more sustainable level,” with conditions still strong for carriers despite the sequential decline, noting that it assumed October’s spike would be short-lived and not maintained at that level. But it said that if contract rates are able to sustain its current path of growth momentum, the 2018 TCI should top November’s reading, as freight demand is still strong, although with utilization close to 100% there is not a lot of room to run for this part of the TCI.

“With utilization levels fairly close to industry limits, further gains in the TCI are likely to come from either more significant pricing gains or additional freight growth,” said FTR COO Jonathan Starks in a statement. “We are already seeing the pricing effects take hold with more substantial contract rate gains as spot market pricing surged after the hurricanes and during the holidays. Spot markets actually hit record high rates in the last week of 2017 and are starting 2018 at a significantly elevated level. As we move into 2018, the market is poised to see additional freight growth and further limits on capacity as ELDs are fully enforced beginning April 1. The next critical time frame is Q2 when truckload activity ramps up and the full ELD enforcement hits. As the recent Polar Vortex weather demonstrated, any modest change in operating conditions can have an oversized impact on carriers and shippers as the industry operates with very limited (if any) excess capacity.”

The pricing effects cited by Starks are in in line with observastions from Robert W. Baird & Co. analyst Ben Hartford.

Speaking at this week’s SMC3 Jump Start 2018 conference in Atlanta, Hartford said that expectations for carrier rate increases during 2018 were high, consistent with recent spot truck pricing data, adding that Baird continues to see gains of 5% and higher for contractual truckload pricing growth in 2018, with LTL and domestic intermodal trailing but also remaining on growth paths.

What’s more, Hartford referred to an SMC3 audience poll of roughly 90 attended at the event, which cited how "65% of respondents selected "carriers are looking for payback," while only 35% selected "carriers will approach rate negotiations on a rational basis."

A separate question posited "given the strength in spot demand and pricing, when do (you) expect some relief?", and two thirds of respondents indicated 2019 or later (with 41% indicating during 2019 and 25% indicating 2020 or later). 29% expect relief in 2H18, with only 5% expecting relief during 1H18.