Tighter capacity due to HOS regs could spur higher trucking rates, says FTR

Trucking market conditions may result in seasonal pricing power for carriers, according to the Trucking Conditions Index released by freight transportation consultancy FTR Associates this week.

FTR said its reading for July, the most recent month for which data is available, was 8.41, representing a 30 percent gain over June. And it added that this increase reflects how going forward carriers may see rise in pricing this fall as capacity tightens with regulatory effects and decent freight demand. FTR also noted that it expects a modest peak in freight growth in the fall of 2013 before demand reverts to the slow growth trend experienced in 2012 and early 2013.

The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight. According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are in a good range for carriers.

“There still remains very little hard evidence of the impacts from the recent introduction of new Hours-of-Service rules on July 1, but anecdotal accounts and very early data are starting to show some potential impacts,” Jonathan Starks, FTR director of transportation analysis, said in a statement. “Unfortunately, freight demand has remained lackluster with very little movement up or down outside of normal seasonal activity. There is potential for a decent fall peak shipping season as the ISM manufacturing index is strong and inventories remain relatively lean, but the continued slog of the overall economy makes it unlikely that we get the significant push in consumer activity that is needed to really start moving the needle on capacity constraints and upward rate activity.”

Starks also noted that should any decent economic growth occur it should quickly show up in truck activity and tighten a market that has very little spare capacity, explaining that the potential for an extremely tight truck market remains but is dependent on those external factors.

Many industry estimates pin the loss of carrier productivity from the HOS rule changes at about 1-to-3 percent.

An East Coast consumer products retailer told LM that since the new HOS rules took effect his company has seen a fairly significant impact to its Dedicated Fleet operations that support our regional delivery and inbound to distribution centers.

“We largely operate under a 6 day/week delivery/operating scenario, so the new HOS [has] had a big impact on our asset dependencies and our staffing/driver count,” the retailer said. “The overall impact to costs has been 4-5 percent on fixed asset costs. Long term, we will see if this creeps into our variable operating costs for driver pay as we may have to pay more to retain them on a 5 day week or limited 6 day week.”