Shippers are experiencing overcapacity in the both the truckload and LTL markets and have seen slightly higher rates during the year, according to Wolfe Research’s third quarter The State of the Freight report. The report also indicated that carrier bankruptcies are in the decline and less freight is being diverted to rail.
Wolfe said that 76% of survey respondents noted that fuel costs forced them to consider less fuel-intensive modes of transportation, down from 82% from last quarter, as oil dropped from $150 to $75 per barrel over the course of three months. According to the survey, rail rates are approximately 12% cheaper than current truckload rates--about what it was the previous quarter--despite declining fuel prices. Shippers expect rates to increase slightly during 2008—0.8% for TL shipments and 0.6% for LTL shipments.
However, the survey indicated that shippers diverted 5.0% of their volumes from truck to rail and 4.7% of their volumes from rail to truck, a net freight diversion to rail of about 0.3% during the third quarter, down from +2.2% and +3.4% during the previous two quarters.
A large concern for those surveyed was overcapacity in both TL and LTL. A majority of truckload shippers (59%) described an environment of overcapacity during the third quarter—of which 10% described it as “extreme overcapacity”—compared to 38% and 4% respectively in the second quarter. More than half of LTL respondents noted overcapacity in the market, marking the eighth straight quarter over 50%. And 18% reported extreme overcapacity, up from 9% in the second quarter.
For the coming year, 32% anticipate tighter TL capacity and 33% expect TL capacity to increase, a large reduction in capacity expectations from the second-quarter 2008 survey, where 73% of shippers expected tighter capacity. Shippers do anticipate greater LTL capacity in the next 12 months, with 36% expecting more LTL capacity and 16% tighter LTL capacity.
According to Wolfe, as fuel prices have fallen, so have bankruptcies. The preliminary Wolfe Research Truck Bankruptcy Index fell to 110 in October, down from 134 in September, 123 in August and 153 in July, although “we continue to be surprised that bankruptcies have not risen even further given the worsening downturn.” In addition, 51% of respondents said they have seen an increase of truckload carriers exiting the industry compared to what they have seen in the past 12 months, down from 73% in the second quarter, while 43% reported no change.
Wolfe asked shippers if they plan to re-bid their freight to lock in lower rates over a multi-year contract rather than a one-year contract, with 14% of both truckload and LTL respondents said they have, down from 17% in the second quarter. However, 21% of truckload and 23% of LTL shippers said they plan to negotiate multi-year contracts in the future, up from 15% and 16% in the second quarter, respectively.
Inventories have dropped both from the second quarter and the year-ago period, Wolfe said, with a large increase in the number of shippers that reported a 10% or more reduction in inventories. 49% of shippers expect to ship less in fourth-quarter 2008, with 14% expecting to ship substantially less, compared to 39% and 9% last fourth quarter.
“Our sense is that many shippers are voluntarily depleting inventories in light of the current extreme market and economic uncertainty,” the report said. “While many shippers are delaying their shipping decisions, we believe this environment of inventory drawdown is likely not sustainable at current levels for many more quarters beyond fourth-quarter 2008.”