Capacity fears keeping some truck rates steady: US analyst

BALTIMORE, Md. — Truckload and LTL demand stateside is "extraordinarily weak" and while capacity has been declining rapidly, it is not keeping up with the drop in demand.

Like that of many trucking economists these days, that’s the word from John Larkin of Stifel Nicolaus Transportation Research.

During a webcast hosted by Logistics Management Magazine last week, he noted that on the truckload side, small fleets have been downsizing for the last three years, but large fleets have been declining only since mid-2007.

LTL equipment showed a year over year decline of 3.1 percent in November for the ninth month in a row, due to some degree to aggressive downsizing programs by large LTL carriers like YRC Worldwide or failures of fleets like Jevic Transportation.

So, "it is no surprise that we have seen capacity come out of the LTL industry," Larkin said. "All of the terminals and service centers, however, still remain in place, so the LTL capacity reductions aren’t exactly the permanent capacity reductions that we see on the TL side."

Things in the U.S. are going to get worse before they
get better, American freight economists conclude.

On the bright side, though, rate wars aren’t as vicious as they could be. Rates remain somewhat consistent, as big shippers are afraid there won’t be enough capacity when the economy recovers and are willing to maintain rates for their favorite carriers.

"The spot market, however, is awful right now. We have heard many spot rate quotes of around $0.80/mile, which probably doesn’t even allow the capacity provider to cover his variable costs, much less his fixed costs."

Meanwhile, Stifel Nicolaus estimate that in 2008, roughly 130,000 to 140,000 trucks came out of the U.S. industry (6.5 percent) due to company failures, which is on top of another 6.5 percent reduction related to carriers downsizing.

Larkin notes was that "some of the bigger truckload carriers are deciding that the TL business is not a very good business to be in; it tends to be very cyclical, very seasonal, very labor intensive and very capital intensive."

Large companies such as J.B. Hunt, Werner Enterprises have "downsized their core trucking fleets fairly dramatically."

Larking noted that "we are currently in uncharted waters," making it very difficult to predict the future.

However, he believes that by the end of this year, the freight environment may show signs of improving, albeit slowly.

— via Truckinginfo.com

 

Have your say

We won't publish or share your data

*