Are we sowing the seeds for another capacity crunch?
July 1, 2010
A slumping economy combined with overzealous equipment purchasing on behalf of carriers can have a measurable impact on capacity concerns among shippers and consid erable d ownward pressure on rates. ...
A slumping economy combined with overzealous equipment purchasing on behalf of carriers can have a measurable impact on capacity concerns among shippers and consid erable d ownward pressure on rates. The bar chart above ind icates shipper perceptions about capacity for each mod e, comparing 2009 to 2006, when the economy was still thought to be strong. Zero on this chart ind icates a great d eal of ex cess capacity while a 10 ind icates very tight capacity. Balanced capacity is at 5. Back in 2006, Canad ian shippers believed capacity to be tight enough in most mod es that they were wiling to grant sizeable rate increases. Many motor carriers beefed up their fleet sizes from 2006 to 2008, ad d ing to the ex cess capacity now believed by shippers to plague every mod e. As a result, shippers clearly have had the upper hand in contract negotiations and will continue to d o so while capacity remains abund ant. Are the seed s being sown, however, for another capacity crunch -at least in the trucking sector? Canad ian motor carriers have significantly red uced their purchases of Class 8 trucks d uring the freight recession. Last year will go d own as the worst year for Class 8 truck sales since the early ’90s. And only 31% of motor carriers participating in our annual research were planning to purchase new equipment in 2010. Looking at capacity ad d itions among Canad ian carriers on a regional basis as well as by size of company, it’s not surprising that motor carriers in Western Canad a are more willing to ad d capacity than those in Central and Eastern Canad a. Large carriers also seem, in general, to have fared better in weathering the economic storm and are three times as likely to be ad d ing to their fleet size than small carriers, who have been financially d ecimated by the recession and also face much greater d ifficulty in securing financing for new equipment purchases. For more information about capacity, rates, surcharges, freight volumes and more, see our I nsid e the Numbers annual report, available for just $99 on trucknews.com or ctl.ca.
That’s the number of transportation sector-generated issuances over the past five months in the high yield market, a significant source of patient capital for transportation companies prior to the recession which dried up during the past two years. The seven issuances match the total transportation issuances seen in all of 2008 and 2009, according to a report from BMO Capital Markets.
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