DENVER — Carriers split almost 50-50 when asked if they are getting an adequate rate of return to justify reinvesting in equipment, according to Transport Capital Partners.
In its Second Quarter Business Expectation Survey, TCP reports that only 53 percent of carriers surveyed said they are getting an adequate rate of return. And only 45 percent of smaller carriers (under $25 million in revenues) said the same compared to 57 percent of their larger counterparts.
"Clearly there exists a hesitancy to purchase new equipment, and new orders are clearly oriented toward replacement needs, as the desire to add capacity is the same for the last four quarters of the survey," said Richard Mikes, TCP partner and survey founder.
Co-partner Lana Batts pointed out that even though 86 percent of the carriers said they have access to reasonable credit, "the concern over inadequate returns on capital is a choke point in adding capacity and unless rates adjust to cover rising costs capacity will be restrained."
The survey further asked what operating ratio is necessary to get a reasonable return on investment. For over 80 percent of carriers, the comfort zone was said to be between 87 and 94 percent – meaning a minimum of 6 percent profit and enough to cover interest and taxes on assets.
Mikes noted the last few years has witnessed a significant drop in new equipment purchases. The recent large increases in class 8 orders is truly pent-up demand for replacements.
View the full report here.
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