BLOOMINGTON, Ind. – Trucking rates in the US will increase by about 4% this year, according to a projection from industry forecaster FTR.
In its monthly State of Freight webinar, FTR transportation economist Noel Perry, said truckload contract rate increases could take hold as early as the first quarter of this year. The spot market is four times as volatile, he noted, meaning spot market prices could swing as high as 15-20%, “so there is real exposure if you’ve got a lot of spot market business.”
Perry also said there’s about a 60% chance of a “major truck shortage” in the next four to six months. This is being driven by a tightening of capacity that’s expected to occur as fleets install electronic logging devices (ELDs) ahead of the December 2017 mandate. Capacity utilization sits at a bout 97%, but could exceed 100% this year or next.
“If utilization gets above 100% there’s going to be some real stress in the marketplace,” Perry said. “That is why our pricing forecast is going up.”
FTR does not expect the incoming Trump administration to derail impending regulatory requirements such as the ELD mandate.
“That’s a statutory requirement that has pretty wide acceptance, so he’s unlikely to do much about that,” Perry said of the ELD mandate. “The real question is enforcement and to what extent will people cheat on this requirement?”
However, Perry conceded cheating on the ELD requirement will be difficult and risky.
“If you have an accident, what do you think the plaintiff attorney is going to do first?” he reasoned. “Let me see your ELD records. If you don’t have any, you are then in violation of the law and can be assumed by a jury to be a careless trucker. The same goes for customers in that scenario.”
Perry said shippers are already asking carriers for proof they are, or will be, ELD-compliant.
He also questioned the trucking industry’s ability to ramp up its capacity to compensate for the lost productivity the ELD mandate will create. FTR predicts the industry will have to hire 100,000 more drivers in 2018, above and beyond its usual hiring rate.
“Can they expand their recruiting apparatus by 40% in a single quarter? The answer is no. So, we are likely to get shortages as this crisis matures,” Perry explained.
FTR’s projections of healthy rate increases are in spite of muted expectations for freight and economic growth.
“Our economy has shifted from a high growth, cyclical economy to a slower growth, more consumer oriented economy where it grows at about 2%,” Perry said. He’s predicting more of the same for 2017, with freight growth of about 2.5%. FTR isn’t counting on the economy getting a huge boost under president-elect Trump, because the US economy is already riding a wave of seven years of strong business investment activity.
Examining downside risks to the economy, Perry noted the global economy remains weak and that the US economic recovery is “getting very stale.” It is one of the longest recoveries in history.
“We are increasingly concerned in 2018-2019 of the chance of recession,” Perry said. “What that means to truckers is a price drop of 5-10% and a drop in volume that’s about the same.”
Looking at longer-term risks, Perry said if Trump comes through on promises to rebuild US infrastructure, the trucking industry will incur a share of the cost. Trucks today pay about three cents a mile in taxes in the US. That could double if the Trump administration commits to fixing aging bridges and could climb to as much as 20 cents a mile if highways are also upgraded.
“At some point, we’re going to have to stop borrowing this money and pay for what we spend,” he reasoned, pointing out in Europe trucks pay more than a dollar a mile in taxes.
“As we look out five to 10 years, there is major cost exposure here,” he cautioned.
And Perry also urged forward thinking trucking executives to consider the effect automation will have on their businesses.
“Right now, a truck spends more than half of its time resting or sitting,” he reasoned. “If you automate that truck one way or another, you don’t have to stop it to let the driver rest and it doubles productivity. It could halve truck pricing. These kinds of technological improvements won’t be mature for 15 years but they’re moving faster than you think. We will probably find the first quantifiable effect of (automation) by 2020. By 2025 there will be significant changes and by 2035 it will be history.”
Through the 2020s, Perry predicted, the transport sector will shrink, not grow, due to automation.
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