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Freight is rising, but so is shortage of drivers

Oct. 10, 2014

The latest analysis on the state of the freight market paints a rosy picture of where trucking is now and where it may be headed in the months ahead— so long as the usual headwinds don’t overly buffer growth.

The just-released Cass Freight Index finds that freight was “relatively flat in September.” Yet the analyst who prepares  the report was quick to point out that freight is enjoying solid growth and is expected to keep right on that road ahead.

“The freight industry continues to experience the strongest year since the recession ended, and while there are still headwinds, things should continue to improve for the industry,” stated Rosalyn Wilson, senior business analyst with Parsons.

“The volume growth that has supported the strengthening in freight is still fragile and susceptible to outside forces,” elaborated Wilson. She described consumers as “the missing key for recovery” but sees them as now “getting back in to the game.”

Wilson said the consumer factor looks so positive because “consumer confidence and, more importantly, consumer spending have been on the rise along with household income.” She added that “a good holiday season would be a big boost for the end of the year.”

Meanwhile, FTR has advised that the Trucking Conditions Index (TCI) it issued this week for August indicates that the market is now “stabilizing at a high level” and that the “upward trend reflects an uneasily tight capacity situation.”

FTR added that it projects that the index “should remain at very positive levels for the foreseeable future, with a strengthening economy suggesting upside potential for freight.”

According to the research and analysis firm, “as market tightness continues, rate and service spreads are increasing between ‘good’ and ‘bad’ freight.  Carriers are experiencing demand levels for their services that are allowing them to choose what freight to haul while maintaining dependable workloads and increasing margins.”

And earlier this week, Bob Costello, chief economist for the American Trucking Assns., said that freight volumes in the trucking industry are continuing to grow. Yet he tempered that upbeat note by pointing out that “the looming driver shortage” could hold back growth. 

"Freight volumes are growing nicely on a year-over-year basis for most trucking sectors as economic growth remains solid,” Costello said during a panel discussion at the lobby’s annual convention. 

“Industry revenue and average revenue per mile are increasing nicely as capacity remains constrained,” he continued. “However, the industry is having a difficult time adding trucks due to the driver shortage.”

Parson’s Wilson pointed out in the Cass Freight Index that the stars are clearly lining up for higher rates. “The rise in costs, especially related to labor,” she explained, “are pressing hard on rates and should break through in early 2015.”

FTR has found that “as market tightness continues, rate and service spreads are increasing between ‘good’ and ‘bad’ freight.  Carriers are experiencing demand levels for their services that are allowing them to choose what freight to haul while maintaining dependable workloads and increasing margins.”

Jonathan Starks, FTR’s director of transportation analysis, detailed where the firm sees both cost pressures rates headed.  “With overall capacity remaining tight and continued cost pressures at fleets, we can expect to see freight rates moving higher into 2015,” he said

“Spot rates are edging lower— from a very high level— but contract rates are still showing signs of acceleration,” he continued. “Growth in the use of outsourced capacity (i.e. broker and spot markets) is joining wage increases as a main driver of cost increases.” He added that fleets are using more outsourced capacity, “a segment in which regulatory impacts are especially strong.”

Besides what might possibly happen with the general economy, the driver shortage remains front and center the headwind that no one disputes wields the greatest force to slow down trucking— this year, next year and for many years to come.

Indeed, according to ATA’s Costello, the driver shortage is now “as bad as ever and it is expected to get worse in the near term,” given that freight volumes are forecast to keep on growing.

Backing that prognosis up, he advised that turnover in the second quarter climbed 11 percentage points to reach an annualized rate of 103%. He said that increase set the rate at its highest point since the third quarter of 2012. “The shortage is acute,” he stressed. “And if the freight economy continues to grow, it will worsen very quickly.”

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