Keep looking up to follow path of truckload rates
Having a myopic approach, or outlook, to something that “may” happen can often prove to be misguided, but that mindset seems to be spot on when assessing the direction of truckload rates and tightening truckload capacity. Why? Based on commentary from speakers at recent industry gatherings like the 2017 FTR Transportation Conference and CSCMP Edge, it stands to reason that in the coming months, rates are only heading in one direction: up.
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Having a myopic approach, or outlook, to something that “may” happen can often prove to be misguided, but that mindset seems to be spot on when assessing the direction of truckload rates and tightening truckload capacity.
Why? Based on commentary from speakers at recent industry gatherings like the and CSCMP Edge, it stands to reason that in the coming months, rates are only heading in one direction: up.
The reasons are plentiful to be sure, when one considers that spot market rates continue to see steady gains, and van load volumes on the top 100 hit a record high for the week ending September 23, according to recent data from DAT Solutions.
To be sure, truckload supply and demand continue to feel the pain in the aftermath of Hurricanes Harvey and Irma in the form of tightening capacity, driven in large part by capacity flowing to Texas and Florida with emergency supplies on board and recovery efforts underway, with capacity going towards recovery efforts leaving other parts of the U.S. underserved in terms of capacity, wrote Stifel analyst John Larkin in a research note following the FTR conference.
And he added that contract prices that were on average 3% before Harvey and Irma may have doubled in recent weeks to 6% or more in recent weeks, coupled with shippers that put the most pressure on carriers for rate reductions in 2015 and 2016 are likely to see things turn around the other way as they relate to carrier rate increases, due to the shift in the supply and demand balance.
At the FTR conference, Larkin said that the impact of post-Hurricane recovery efforts could on the truckload market could be akin to what happened in 2014, resultant of the harsh winter weather in 2014 that had a harsh impact on capacity availability and rates for shippers.
That is something that has received a fair amount of attention in recent weeks. Themes of the tight truckload market, the ongoing driver shortage’s impact on available capacity, coming regulations (think ELD) are all top of mind for shippers, and it is not hard to see why that is, and is likely to remain, the case for the foreseeable future.
Sentiment akin to that was echoed by Noel Perry, an economist at FTR and Truckstop.com, when he said that 2018 is likely to be a “nasty year” at the FTR conference.
At this week’s CSCMP Edge conference, Werner Enterprises President and CEO said that rates on a national basis are still trailing levels they saw years ago.
“Over that several year period, driver wages nationally are up by double-digits and in our fleet they are up 17% in the last two years alone,” he said. “Inland costs are up significantly, and there is no reason to believe to continue to do that. If you look at second quarter publicly available information from public carriers…even with some recent relief on the rate side, they are still making considerably less money than the year prior. If you look at the overall [expenses] required to reinvest into a trucking company, you certainly cannot get there at 3-4% or even 7% margins. Fundamentally, the math does not lie. There is a need for rate relief in order for carriers to be able to invest back into the business and to be able to haul freight for their customers. How much that will be will probably be dependent on many different factors such as the starting point for a particular rate, where it is going regionally, how is that rate treated during a downslide. There are a multitude of things that can affect it. Where it will go I don’t know, but I am quite confident they are not going down.”
That last part received a bit of tongue-in-cheek laughter from the audience at the session Leathers spoke. Not because there was any ill-will involved, but because of how true it rings.
As analyst Larkin noted, it does indeed look like the time is here for carriers to return the favor, when it comes to pricing. That said, it looks like freight rate pain is here for shippers for now anyhow. For how long? Stay tuned.
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
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