Freight analysts are becoming more confident that the trucking industry can obtain freight rate increases and even boost profit margins in the coming months, though much depends on industry efforts to keep a lid on rising operational costs as well as whether U.S. economy can maintain its sluggish growth pattern.
“Our data is telling us that the conditions are ripe for carriers to improve both rates and margins – though that same data says it isn’t happening quite yet,”Jonathan Starks, director of transportation analysis for research firm FTR Associates, told Fleet Owner.
Starks pointed to FTR’s Trucking Conditions Index (TCI) reading for January, which jumped 2.2 points from December 2012 to 10.6 – an upward trend that reflects improved freight growth and expectations for tighter capacity.
He added that this trend expected to continue at a high level as unprecedented regulations – especially new hours of service (HOS) rules – start going into effect in mid-2013 and impact truck utilization.
“HOS rule changes are really going to be the big driver for rate increases, although carriers won’t see too much margin improvement as they’ll need to increase driver pay,” Starks pointed out. “But it’s because of such regulatory change that carriers should be able to sustain the ability to command higher rates – as long as the economy continues to grow at its sluggish, modest pace.”
Consulting firm Transport Capital Partners (TCP) also discerned that carriers themselves believe the environment for freight rate increases is improving based on responses to TCP’s First Quarter 2013 Business Expectations Survey.
The firm’s poll found that a majority of carriers (76.6%) said that while rates remaining the same for the past three months, nearly two-thirds of them are “optimistic” that both volumes and rates will increase over the next twelve months.
“With the present tight slight supply of trucks, an increase of just 1% to 2% over forecasted GDP [gross domestic product] growth could spike rates upwards at anytime, which would help to cover costs,” noted Richard Mikes, a TCP partner and the survey’s author.
This “optimistic view” on rates reflects that slightly over half of carriers believe that volumes will increase, reversing what he calls the “the pessimistic trend” that’s been in place since February of 2012.
“We see this reversal of volume expectations assisting carriers battling against the headwinds of driver shortages, adverse regulations and cost pressures from 2012 and earlier this year,” Mikes added.
Fellow TCP Partner Steven Dutro cautioned, however, that this “optimism” is tempered by a range of concerns, including the limited availability of drivers and especially the impact of HOS rules that take effect this summer which should both limit asset utilization and raise operating costs.
Still, FTR’s Starks contends the truck freight picture is brightening nicely overall.
“We have seen enough indications of an improving economy to expect a growing freight market in 2013,” he said. “As regulators impose HOS changes in July, capacity will further tighten to levels not seen since 2004. Eventually, carriers will have the ability to raise rates though their costs, especially in driver pay, will increase as well.”