Experts Say Capacity Is More in Balance
XPO’s Greg Ritter (left) and analysts Krishnan and Albrecht at Nasstrac’s meeting last week in Orlando, Fla. Photo by Nasstrac.This story appears in the April 20 print edition of Transport Topics.
ORLANDO, Fla. — Trucking supply and demand has been more balanced so far in the second quarter than a year earlier, but rates are continuing to rise because shippers have changed their freight-buying strategy, industry experts said.
“Shippers want to lock up capacity,” said Thom Albrecht, a BB&T Capital Markets analyst, speaking at the Nasstrac meeting here April 14.
He said trucking customers are willing to pay 4% to 6% more for contract freight because of that long-term concern about capacity, even though current freight demand by itself isn’t strong enough to merit that level of increase.
Overall, he said, there has been a “loosening of freight capacity” compared with last year, when truck availability was constricted by an unexpected combination of winter storms, West Coast port disruptions and strong industrial production.
From the shipper’s perspective, Candace Holowicki, director of global transportation and logistics at TriMas Corp., said she has not had much difficulty securing truckload capacity. Last year, however, trucks were particularly difficult to find during a worse-than-usual winter in the Midwest.
This year’s freight markets are “spotty,” though there are some capacity issues in California, particularly for drayage, she said.
Reena Krishnan, a vice president at Wolfe Research, also said the market is “feeling more balanced.”
That has led fleets to take on more business over and above minimum contract obligations, she said, in contrast to 2014, when fleets were less likely to commit above promised levels.
Krishnan said shippers were less willing to accept rate increases last year while they assessed how tight capacity would be during the year.
She also gauged 2015 freight increases at greater than 4%, a level that is encouraging to investors because it exceeds inflation.
In interviews with Transport Topics, carriers and other industry executives offered similar comments about current freight markets.
Greg Ritter, senior vice president at XPO Logistics, said: “It feels like [capacity] this year is going to be more balanced and predictable. That will probably follow through for the year.”
One indicator is the drop in spot market shipments in the first quarter from a year earlier, as measured by load board operator DAT. The firm’s statistics showed a 15% drop in January, 28% less freight in February and 16% less last month.
Albrecht and Ritter also noted other changes in shippers’ buying patterns.
Some customers are trimming the number of brokers they use by as much as two-thirds because they want to lock up asset-based capacity at a time when spot markets are tamer, Albrecht said.
Ritter said customers are searching out brokers with the capability to offer and manage services in addition to trucking.
Attendees at Nasstrac also were careful to note that today’s balanced freight markets may not last.
Holowicki said there is uncertainty about demand levels later this year, prompting her to urge co-workers to be prepared for changing markets.
“Looking for a truck on the afternoon you need it is too late,” she said.
Freight markets could soften as the year unfolds and push future rate increases down to as low as 3%, Albrecht said.
Electronic logging devices also will tip the market, though perhaps not immediately, speakers said.
Krishnan said she believed it was “very likely” the Federal Motor Carrier Safety Administration won’t meet its September target for issuing a final ELD rule, based on the slow pace of regulatory change at the agency.
Ritter said that when small truckers who don’t have ELDs “are forced to play in the same sandbox [with those that have them], that will create some issues of productivity and capacity. We continue to make sure we are aligned with the right carriers,” who won’t have compliance issues.
