Experts try looking into trucking's future

By Advance Business Capital

How bad was the recession for the trucking industry? Bad by any measure, but here’s one statistic that might help you get hold of the big picture. A quarter of a million trucks—250,000—have gone out of service in the last three years! That’s 13% of all commercial-sector vehicles that were on the road in January 2008.

The Longest Block

The good news is that 2010 was a turnaround for most of the companies that survived the slaughter of ’08 and ’09. Recession survivors benefited not only from a modestly improved economy but also from reduced capacity in the freight market (i.e., less competition). Truckers that had been dripping blood from cutthroat rates could at least charge break-even prices, meaning a rise in revenue per load. For the first time since 2006, the ATA truck tonnage index grew for ten consecutive months (dipping in November). 

So can we say that the trucking industry has finally turned the corner? Yes, though to some it’s felt like the longest block in the world.

“On the Cusp”

Happily, a confluence of positive economic events should produce even greater gains in 2011. “If history repeats itself,” says Noel Perry, an economist with TRCG (Transportation Research Consulting Group), “we will have two very good years in 2011 and 2012.” 

Bob Costello, chief economist for the American Trucking Association, agrees. “The industry is on the cusp of some of the best years in trucking’s history,” he told a gathering of trucking executives in Phoenix.

Why? It helps to know some trucking history. Prior to this recession, the freight transport downturn of 2001 was followed by a four-year period (2002-2006) when trucking companies enjoyed some of the strongest pricing power they’ve had since deregulation was introduced in 1980. Trucking analysts like Perry and Costello expect the pattern will repeat.

Shippers and Shortages

The increase in volume will likely bring its own problems, however, since the industry doesn’t have the capacity it did prior to the recession. The truckload sector (rather than LTL) is where demand will stretch supply, i.e., where shipping needs will be greater than carriers’ ability to meet those needs. 

TRCG’s Perry forecasts that mid-2011 will see GDP growth of 3%, which means a similar increase in freight, but major truckload carriers (Schneider National, Werner Enterprises, J.B. Hunt, etc) have cut their over-the-road capacity by as much as 15%. The huge surplus in truckload that began in 2009 will vanish. Perry is predicting a shortage of some 200,000 units in truckload capacity next year as the freight economy improves. “There is no way these carriers can ramp up trucks and drivers by the time the economy kicks in gear.”

The squeeze will inevitably affect traditional shipper behavior. According to a recent survey conducted by Cormark Securities, shippers are concerned about freight costs. Perry expects shippers to try to lock-in longer contracts as truck capacity worsens.

The Intermodal Option

While many trucking executives are optimistic about 2011 profitability, longtime industry analyst Satish Jindel of SJ Consulting believes rate increases won’t benefit carriers as much as anticipated. “Contract rates might improve 5-to-7% next year,” Jindel says, “but carriers will have to spend more for drivers, fuel and equipment; their actual yields may improve by only half that amount.” 

On the other hand, transportation analyst Jason Seidh of Dahlman Rose is positively bullish. “Truckload rates could rise by as much as 10% in 2011,” he says. Jindel disagrees. “Intermodal has changed the game. If truckload goes too high, shippers will go to rail,” though he concedes that intermodal is only competitive for loads traveling farther than 600 miles.

A New Word

On the whole, analysts are in consensus that 2011 will bring a much-improved picture to the trucking industry, though the new year—like every year—will bring its share of problems. Most industry survivors probably are like Ryder executive Sherman Dorf. “Undercapcity?” he shrugs. “What’s that? I should have such problems every year.” 

This story was drawn from articles in Today's Trucking, Bloomberg, Transport Topics, Logistics Management and Reuters.

This article is provided as a service for truckers and everyone in the trucking industry by Advance Business Capital. ABC is the first and only factoring service designed by truckers for truckers. We provide innovative financial solutions exclusively to For-Hire truckers and Freight Brokers and are proud to be the first factoring company to receive the P3 (Preferred Platinum Provider) endorsement from the Transportation Intermediaries Association.

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