The pricing pendulum

For-hire carriers will continue to face highly competitive rate competition as excess capacity will hold rates down in the near term. Because fleet capacity utilization is rebounding from depressed levels, the uptick in freight volumes (minus building materials) will not be enough to spur rates even as wholesale and retail inventories are replenished, exports continue their rebound, and final sales

For-hire carriers will continue to face highly competitive rate competition as excess capacity will hold rates down in the near term. Because fleet capacity utilization is rebounding from depressed levels, the uptick in freight volumes (minus building materials) will not be enough to spur rates even as wholesale and retail inventories are replenished, exports continue their rebound, and final sales to domestic purchasers moderately expand.

The good news with respect to this year is that expanding freight volumes will result in an upward trend in fleet capacity utilization. Investment spending on trucks, however, will remain low since carriers already have the capacity in place to meet higher freight volumes.

Truck availability will slowly move closer into balance with freight capacity this year, easing the competitive pricing environment throughout the year. Fleets will become firmer with their pricing schedules as the availability of freight increases, taking the carrier's risk out of rejecting bids.

Shippers used excess capacity during the 2008-09 recession to aggressively re-price freight transportation. Carriers responded by aggressively bidding to maintain freight without reducing truck utilization, which would have negatively affected profits. The pricing pendulum will remain on the shipper side in 2010 because fleet capacity utilization is slowly increasing from depressed levels, but the pendulum is slowly swinging towards carriers as excess capacity decreases.

Expect the pricing pendulum to shift to the carrier side sometime during the first half of 2011 with carriers' pricing power continuing to strengthen during the second half of 2011 and into 2012. Shippers can expect carriers to aggressively increase freight rates just as shippers aggressively re-priced freight during the recession. Shippers that do not accept higher freight rates will have difficulty obtaining trucks to move freight, since freight availability will be greater than truck availability.

In 2010, the changing environment will be gradual, so shippers will not immediately notice the swing in the pricing pendulum from shippers to carriers. Still, the changing will have large implications for both shippers and carriers.

Shippers should look to implement strategies this year to ensure capacity in 2011 while minimizing the impact of higher freight rates. Carriers, in turn, need to address ways to keep freight in 2010 without getting locked into contracts that would preclude higher rates in 2011.

The rate at which the pricing pendulum swings from shippers to carriers depends on the growth rate of freight volumes. CMVC predicts a gradual to moderate freight recovery in 2010, so the pendulum remains on the shipper side for now. But that will change as excess capacity is removed from the market. Shippers and carriers that anticipate the changes in the pricing environment will succeed in comparison to shippers and carriers that react to changes in the pricing environment.


Commercial Motor Vehicle Consulting publishes the monthly newsletter Visibility of the Supply Chain for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.

Class 8 capacity utilization

By the numbers

2005 2006 2007 2008 2009 2010
Freight volumes 3.3% 2.4% 1.6% -1.5% 6.9% 2.9%
Capacity 4.7% 5.6% -0.7% -1.6% -3.4% -2.5%
Utilization -1.4% -3.2% 2.3% 0.1% -3.5% 5.4%

Source: CMVC

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