Economic winds clearly at trucking’s back

Dec. 17, 2014

Optimism about the economic road ahead remains tempered, at least for trucking. That seems obvious given that while a “high percentage” of motor carriers are earning adequate rates of return (thanks largely to freight volume and rate hikes), these operations “remain prudent in their plans for capacity growth.”

That finding is from the Q4 Business Expectations Survey, authored by Richard Mikes and Lana Batts of Transport Capital Partners (TCP). The just released study was conducted by TCP in conjunction with ACT Research Co.

Steven Dutro, TCP partner, said the results show that despite positive market developments, the “review of Hours of Service [restart provisions] in the budget bill may slow expected capacity additions” as returning to the “prior [restart] rules may free up 2% to 4% of driver capacity in 2015.”

According to TCP, the study also indicated that “despite better rates of return, carriers are still being judicious about the amount of capacity they intend to add. Forty percent indicate they intend to add 1-5% over the next 12 months while 25% indicate they will add 6-10%. Nonetheless, 25% of carriers indicate they intend to add no capacity.”

TCP found that larger carriers are more likely to add zero capacity than smaller carriers (28% vs. 18%). On the other hand, larger carriers are more likely as well to “significantly increase” capacity (by 6-10%) than smaller carriers (35% vs. 20%).

The survey revealed that the most common method (32%) for increasing capacity now is by adding company equipment, either financed or via a TRAC Lease.

What’s more, TCP said the number of respondents expecting to add capacity through independent contractors “dropped to an all-time low of 14%, continuing a trend we have seen since late 2010.”

Yet another indication the economic winds are becoming more favorable for motor carriers is the reading of -5.5 produced by the FTR Shippers Conditions Index (SCI) for October, which the research firm said today “reflects a modest, temporary improvement in capacity conditions.”

FTR explained that even though “capacity conditions have moved out of the critical danger zone of a few months ago, the trucking segment remains highly vulnerable to seasonal shortages.”

That being said, the firm expects the SCI to “deteriorate over the next several months, especially in light of noticeable increases in costs at carriers, with the exception of fuel, and increased transaction expenses as shippers search harder for capacity to haul their goods.”

Jonathan Starks, FTR’s director of Transportation Analysis, commented that of the four key segments that represent the SCI, “fuel is currently the only item with a positive contribution in October. “Tight capacity and the corresponding rate increases remain the biggest challenge for shippers.

“While truck utilization has eased from the level seen last winter,” he continued, “it still remains historically high. Likewise, contract rates continue to steadily move higher and spot rates are quite elevated-- up 20% year over year in late November.

Starks also observed that despite falling fuel prices, “the cheer from shippers may be short-lived. As the economy looks likely to accelerate in 2015 it could cause capacity to tighten once more, leading to further acceleration in base freight rates.”

He added that the restart rollback now in effect amounts to “a modest positive for the industry, but would not be enough to offset the [capacity] demand from a strong economy.”

Optimism about near-term business prospects is reflected as well in the Equipment Leasing & Finance Foundation’s latest Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). Released today, the December figure stands at 63.4, which the group termed as “steady with the November index.”

Per the foundation, key findings of the December index study include:

  • “When asked to assess their business conditions over the next four months, 28% of executives responding said they believe business conditions will improve over the next four months, up slightly from 27.3% in November.  72% of respondents believe business conditions will remain the same over the next four months, up from 69.7% in November.  None believe business conditions will worsen, down from 3% the previous month.”
  • “22% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, down from 30.3% in November.  72% believe demand will ‘remain the same’ during the same four-month time period, up from 66.7% the previous month.  6.3% believe demand will decline, up from 3% in November. “
  • “22% of executives expect more access to capital to fund equipment acquisitions over the next four months, up slightly from 21.2% in November.  78% of survey respondents indicate they expect the ‘same’ access to capital to fund business, down slightly from 78.8% in November.  None expect ‘less’ access to capital, unchanged from the previous month.”
  • “When asked, 43.8% of the executives reported they expect to hire more employees over the next four months, a decrease from 45.4% in November.  50% expect no change in headcount over the next four months, up from 48.5% last month.  6.3% expect fewer employees, essentially unchanged from November.”
  • “47% of the survey respondents believe that U.S. economic conditions will get ‘better’ over the next six months, an increase from 42.4% who believed so in November.  53% of survey respondents indicate they believe the U.S. economy will ‘stay the same’ over the next six months, down from 54.6% in November.  None believe economic conditions in the U.S. will worsen over the next six months, down from 3% last month.”

Among the comments offered by executives responding to the study was this observation by Paul Menzel, president & CEO, Financial Pacific Leasing, LLC:  “Lower energy costs will benefit consumers and small businesses.  These are the segments of the economy that has been lagging compared to historical recoveries.  I believe stronger spending will lift corporate revenues and, in reaction, business investment.  Finally ?!”

Offering a nuanced view ahead, Harry Kaplun, president, Frost Equipment Leasing & Finance, remarked that: “Energy costs are the new looming uncertainty.  In some sectors/industries this is a positive while in others it is a negative.  How that balances out from a national as well as global standpoint remains to be seen, but it will give some pause to growth plans.”

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