BLOOMINGTON, Ind. — Industry forecaster FTR hosted a State of Freight webinar today, sharing six lessons learned in 2014 and shedding some light on what motor carriers can expect going forward.
Lesson 1: We are in for a long-cycle recovery
Noel Perry, senior consultant for FTR, said it would be understandable to expect the US economy to slow and to head back into recession, based on previous economic cycles and the fact the current recovery is now in its sixth year. However, when he showed a slide overlaying previous recoveries, the last three – 2001, 1991 and 1982 – all lasted more than six years.
“And so it’s logical to think then that the environment has changed and that recoveries now tend to last longer,” Perry concluded. “So it’s perfectly reasonable to expect this recovery has a few more years to go.”
Perry admitted FTR was alarmed when US GDP slipped into negative growth in the first quarter of last year but it has since returned to positive territory and, “we assume there are several more years before a recession,” Perry added.
Lesson 2: The capacity crunch is about surge capacity
Truck utilization rates are high and capacity tight, but where this really has an impact is in the trucking industry’s ability to cope with problems or seasonal issues that arise, Perry said.
With capacity utilization at nearly 100%, the industry will be challenged if severe weather, for example, curtails the industry’s productivity for any length of time.
“Over time, the industry has squeezed out that surge capacity,” Perry noted. “When we have weather problems and lose a point or two of productivity, it pushes us over the top.
Lesson 3: Freight discrimination has become very important
Carriers are learning to price unproductive freight accordingly, in a relatively new strategy Perry referred to “freight discrimination.”
“All this means is, truckers are increasingly aware of the differences in productivity particular loads have and are increasingly pricing the loads that have low productivity – ie. no backhaul or uneven in volume or that’s the wrong day of the week for their system – they are increasingly pricing those up.”
Carriers continue to offer attractive pricing on freight that fits nicely into their system and is productive to handle. Their reticence to handle more troublesome freight at comparable prices is resulting in more of it being brokered out to others. This has resulted in a larger price gap between contract and spot market freight rates, Perry explained.
Lesson 4: Spot and contract price distinctions have become very important
In July, spot market freight rates were up 12% year-over-year while contract rate growth lagged at about 5%, Perry pointed out.
However, he also noted the spot market sees more pricing volatility, some of it seasonal in nature.
“If you’re looking at spot market prices, it’s really important to understand that seasonality (influence),” Perry said, adding FTR will be studying seasonal impacts on the spot market prices in more detail.
Lesson 5: The energy crisis is over for a while
Perry took a bold position on the energy crisis, declaring it over for a while. How long is a while? Well, “When I say a while, I mean as long as I’m going to live on this Earth and I intend to live another 30 years,” he declared.
Perry cited increases in energy supply in the US coupled with decreasing demand. This doesn’t bode well for natural gas engine demand, however. While Perry said natural gas still makes sense in short-haul applications, it’s not a good solution for most long-haul fleets, thanks to lower diesel prices – in the US, at least.
“This 2020 forecast we had looking ahead for increased natural gas engines doesn’t look so good now,” Perry admitted, noting the net natural gas operational savings versus diesel are becoming slimmer.
Lesson 6: Things change quickly
The appropriations bill tabled by Congress that could see controversial elements of the hours-of-service reset provision suspended for two years while further study is conducted, is another example of how quickly things can change.
Under scrutiny is the provision that requires drivers to include two overnight periods in their 34-hour reset. These requirements may be suspended for two years, which will provide an immediate boost to the US trucking industry’s productivity, Perry explained, adding 0.8% to productivity immediately.
It would also see truck utilization rates drop from 97% to 96%, Perry noted. This will restore surge capacity from a dangerously low 2% to about 4%, “which means the industry can weather a lot more trouble in 2015,” Perry said.
However, that reprieve, if it goes through, will be short-lived, with other regulations on the books for 2016 and beyond that could further restrict the industry’s productivity. And with the hours-of-service rules under the microscope, Perry said it’s also possible further study could eventually result in more restrictions, not less. The mandatory use of electronic logging devices is another impending regulation that will impact productivity, though it could be 2017 before new ELD requirements are enforced.
FTR conducts its State of Freight webinars regularly, offering subscribers insight into trends affecting the trucking industry freight markets. For more info, visit www.FTRIntel.com.
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