An uneven flow of freight volume combined with the still-uncertain impact of changes to hours of service (HOS) regulations that went into effect July 1 are retarding the ability of carriers to win significant rate increases, at least for the moment.
“We believe truckload industry dynamics remain on the precipice of greater things to come,” noted John Larkin, CFA, managing director and head of transportation capital markets research for Wall Street firm Stifel, Nicolaus & Co., in a recent investor update.
“While supply and demand are roughly in balance, not enough customers believe that the new HOS rules will create widespread capacity shortages,” he added. “Therefore, pricing increases are limited to lane-specific changes of low single digit year-over-year increases.”
Jonathan Gold, vice president of the National Retail Federation, told Fleet Owner than many of the group’s members are “still trying to figure out” what alternations they’ll need to make to their supply chain operations due to HOS changes.
“Many are still trying to ascertain what changes will be needed,” he said. “It’s all part of evaluating their supply chain needs.”
Freight flows are also somewhat uneven though June as well, according to data tracked by the Bureau of Transportation Statistics (BTS), which also may be hampering the ability of carriers to win rate increases.
The agency said today that the amount of freight carried by the for-hire transportation industry fell 0.2% in June from May, declining after a one month increase – though according to its Freight Transportation Services Index (TSI) that drop resulted from a decline in rail carloads and pipeline shipments, while trucking, rail intermodal, and water freight demand stayed relatively stable.
BTS added that it Freight TSI also remained above its 2012 range for the sixth month in a row, despite the 0.2% decline in June – yet freight declined slightly over the second quarter of 2013, dropping 0.1% by June, which is the first decline over a full quarter since September 2012.
Still BTS’s year-to-date freight data indicates shipments increased 1.4% in June compared to the end of 2012, with freight shipments up 3.2% in the five years from level reached in June 2008 and jumped up 10.5% since June 2003.
Stifel’s Larkin believes, however, that U.S. economic growth should continue to strengthen and thus boost freight demand – due especially to the in-sourcing/near-shoring of manufacturing to the U.S., energy exploration and development, and more robust infrastructure investment.
“This should lead to accelerating growth in the freight demand arena,” he said. “However, we believe that supply and demand will not be tight enough until the second quarter of 2014 at the earliest to drive mid-single digit year-over-year rate increases as the overall economy, unfortunately, still appears mired in its multi-year slow, steady growth pattern.”
One example of such “slow growth” comes from a recent analysis of “back-to-school” sales the Integer Group. In its latest issue of The Checkout, an ongoing shopper behavior study, Integer found that 31% of survey respondents said they won't be shopping for any back-to-school products at all, and with fewer people shopping, certain channels will see a drop in traffic.
Integer predicts that mass, clothing, and drug will take the largest hit, losing 2.3%, 3.2%, and 5.5%, respectively, of shoppers this year compared to last.
"The shoppers who are heading out this year plan to visit fewer channels, meaning retailers will have a harder time maintaining the same level of foot traffic as last year,” noted Craig Elston, Integer’s senior VP-insight & strategy. “Retailers will have to strive harder to get shoppers through the door by investing more in order to entice people with promotions, deals, proper communication, and incentives outside of the store.”
NRF’s Gold added that, from the perspective of retailers, some of the “slow growth” in freight demand may be due to more sluggish-than-anticipated activity where “near-shoring” is concerned.
“We don’t see a huge rush to return operations to the U.S. right now because it really only makes sense based on a particular corporation’s supply chain strategy,” he explained. “If it makes sense, particularly if operations are relocated from Asia to South America, they will do it. But right now many of our members are still trying to figure that out; they will wait and see it if works.”