Fleet Executives Say Strong Markets Increase Opportunity to Raise Rates

This story appears in the Feb. 23 print edition of Transport Topics.

CORAL GABLES, Fla. — Trucking markets will continue to be solid this year, opening the door for carriers to raise rates at least 4%, fleet executives and analysts said.

They spoke at industry conferences here earlier this month, setting an upbeat tone that also stressed a continuation of tight capacity.

“The freight market is strong,” said Derek Leathers, president of Werner Enterprises, which ranks No. 14 on Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.”

“We are confident it will remain so, going forward. Compared to the eight prior years other than 2014, demand stacks up very well,” said Leathers, who spoke at the BB&T Capital Markets transportation conference.

Widespread winter weather troubles last year and the subsequent catch-up made 2014 freight patterns erratic. However, demand was strong enough for tonnage to reach record highs, according to American Trucking Associations.

A report from investment firm Stifel, Nicolaus & Co., which also hosted an industry conference earlier this month in Florida, said truckload demand “has remained seasonally strong relative to current industry capacity levels.”

At No. 6 Swift Transportation, CEO Richard Stocking said, “Three percent GDP growth will keep capacity drum tight.”

Dave Jackson, CEO of No. 31 Knight Transportation, stressed the need for higher rates to help fleets support driver pay increases and invest in new equipment.

Thom Albrecht, a BB&T analyst, said carriers now are winning rate increases in the 4%-6% range.

David Parker, CEO of No. 43 Covenant Transportation Group, went further, saying rates could rise at least 7%.

“We are very encouraged by what we are seeing,” Parker said. “Overall, capacity is tight.”

But four shipper representatives publicly disputed the notion of a 4%-6% increase.

Budgetarily, I wouldn’t be able to absorb the 4,” said Steve Johnson, Coca-Cola supply chain director, customer solutions. “I don’t think it is going to be anywhere close to 6.”

Frank Dreischarf, director of distribution for lawn care company Scotts went further. “If I tell my boss 4%, it wouldn’t be long before I had to clean out my office. I have to get a much lower number,” he said.

Rick Schart, vice president of supply chain for discount retailer Stein Mart, said the same would happen to him, noting that a 5% increase could add as much as 30 cents to the sale price for a piece of apparel.

“We can’t price this in,” Schart said. “We are under intense pressure from our customers.”

Adam Burke, assistant vice president of domestic transportation at BJ’s Wholesale Club, said he’s working toward a 2%-3% rise instead.

The LTL market also is showing promise, executives and analysts said.

The segment’s “renaissance is well underway”, Stifel’s report said, as a strengthening manufacturing sector means fleets are doing more last-mile deliveries and handling more e-commerce shipments.

Douglas Stotlar, CEO of No. 4 Con-way Inc., said “we are fairly pleased with demand for LTL,” with tonnage up 3.2% last month. Capacity is tight enough that the company’s LTL unit is turning away 300 to 350 loads on some days.

January tonnage rose 15%, and pricing improved, said Old Dominion Freight Line CEO David Congdon. However, the top executive at No. 12 Old Dominion tempered expectations about February and March.

Albrecht also noted that conference attendees already are looking out to the coming years.

“No one involved in freight flows we spoke to last week views 2015 as the peak,” Albrecht said in a report last week. “Next year’s regulations [such as electronic logging devices] figure to tighten capacity.”

One shipper believes capacity constraints won’t hit their worst levels until 2017, while another believes that the market will be toughest for shippers late next year.

Uneven growth in the truckload sector is another issue for trucking, Albrecht said.

On one hand, there is a continuing shift in truckload toward more dedicated freight runs for refrigerated and van shippers. However, over-the-road truckload capacity continues to shrink, he said.