Truck-freight pricing “renaissance” in sight

As trucking freight capacity keeps exiting the market and freight volumes continue their recovery, motor carriers may find themselves in position to obtain better rates . That is unless uncontrollable factors, such as higher fuel prices, knock over the apple cart just as it gets rolling

As trucking freight capacity keeps exiting the market and freight volumes continue their recovery, motor carriers may find themselves in position to obtain better rates . That is unless uncontrollable factors, such as higher fuel prices, knock over the apple cart just as it gets rolling.

“Given carrier capacity is tightening, qualified carriers are in a good position to seek rate improvements,” David Schrader, senior vp-freight business services for TransCore, told FleetOwner.

“In fact, we’ve already seen rates improving for carriers in the spot market in the first quarter, particularly in the last 30 to 60 days,” he added. “Shippers will find it increasingly difficult to locate capacity on their own, and will turn to brokers. If the brokers are successful at securing trucks, they should also have more leeway on pricing.”

TransCore’s most recent benchmark survey, comprised of detailed responses from more than 225 brokers, broker-carriers, and third-party logistics providers (3PLs)” showed that after a tumultuous 2009, freight-broker metrics are showing signs of stabilization.

Survey respondents moved an average of 990 loads per month, which was not a significant change from last year’s survey, even though truck freight declined by 9% compared to 2008, according to the American Trucking Assns. (ATA) for-hire truck tonnage index. TransCore’s freight index reported that spot-market load volume for the year slid by 43%.

Despite the upheaval in 2009, brokers without assets reported a slight uptick in gross margins per truckload, from 15.3% in 2008 to 15.9% in 2009. Because of the high fixed costs associated with carrier operations, however, gross margin per truckload for asset-based brokers dropped to 14.1%, compared to 15.2% in 2008.

Yet respondents to TransCore’s survey that identified their companies as 3PLs or freight forwarders earned the highest margins per truckload among survey respondents, with 16.5% in 2009 compared to 16.2% in 2008. The overall average was 15.6% which was not significantly different from last year’s 15.3% average response, Schrader noted.

Yet that’s all changing, and relatively quickly, he stressed. “Freight is up – way up,” Schrader said. “Trucks are down, but not by as large a proportion – certainly not on the spot market, where capacity is declining at a rate of 1% to 3% per month, while freight availability is increasing consistently by 30% to 45%, month over month.”

Data compiled by Jon Langenfeld, transportation & logistics analyst with investment firm Baird & Co., seems to confirm this trend. “A freight pricing ‘renaissance’ is on the horizon,” he said in his latest research brief. “Truckload fundamentals have firmed to begin 2010. Our spot truck demand indicator is tracking at or above 2008 and 2006 levels, both of which were healthy freight periods.”

More importantly, Langenfeld added, Baird’s Supply/Demand truckload index has improved beyond the levels experienced in the past four year years and is at or above 2005 levels for this time of year. “This bodes very well for both contractual rate increases and spot rates as the year progresses,” he noted.

Yet Langenfeld pointed out that while the same trend lines are present in the LTL sector-- with freight volumes generally healthy and LTL rates stabilizing in the first quarter this year following intense pressure during the fourth quarter of 2009-- LTL pricing gains remain very limited given the sector’s 15% to 20% excess capacity.

“Absent a meaningful capacity rationalization, LTL rate growth will lag broader modes and pressure full-cycle margin potential for LTL carriers, leaving us cautious on asset-based LTL carriers,” he noted.

As always, too, other factors could complicate trucking’s nascent recovery as well, TransCore’s Schrader added. “The industry is always carefully watching fuel costs, but over the past few years, the use of surcharges has helped mitigate the impact swings in fuel have on carrier margins,” he said. “The greater concern now is overall carrier capacity and the potential impact of CSA 2010 on fleets.”

Even though the Federal Motor Carrier Safety Administration (FMCSA) rolled back the implementation of CSA 2010 from June to November and on into 2011, Schrader said carriers don’t know yet how they’ll be affected by the rule’s new safety scoring system dubbed “BASICs,” short for “Behavioral Analysis and Safety Improvement Categories.”

“These focus heavily on individual driver scores,” he said. “In this case, a few bad apples could impact the whole barrel for a carrier. Some pundits have projected that 20% of current drivers will be disqualified using the new BASICs.”

Despite those worries, though, Schrader said the industry outlook now seems to be turning positive quite rapidly. “Given the carrier capacity issues, brokers with assets appear to be in a potential catbird seat,” he said.

“As brokers scramble to find quality carriers, having assets will help them serve: a) their own customers; and b) new customers. More importantly, brokers in our survey were concerned about capacity constraints in 2010,” Schrader added. “ A year ago, their biggest concern was finding freight. This is a total about-face in one year.”

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