Deep concern about capacity in the trucking sector over the past couple of years has shifted the balance of power between shippers and motor carriers and led to the most significant increases in truck rates since deregulation of the industry back in the late 80s.
Our recently completed Annual Transportation Buying Trends Survey, conducted in partnership with the Canadian Industrial Transportation Association and CITT, found that 83% of shippers using truck transport paid higher rates in 2005 compared to the previous year, which saw record rates in itself. Two thirds reported paying rate increases of 4% or higher with a fifth reporting increases of 10% or higher.
There has been hope among shippers that upward pressure on rates would subside as concern over capacity eased. And our survey, which includes the participation of more than 700 shippers from across Canada, does indicate that shipper concerns over truck capacity are easing. They scored their concern over truck capacity an average of 5.87 on a scale of 1 to 10 with 1 representing plenty of capacity, 5 representing balanced capacity and 10 representing very tight capacity. In contrast concern over rail capacity was almost a full point higher at 6.57.
Several developments are likely causing shippers to be more optimistic about truck capacity. Motor carriers on both sides of the border have been adding equipment; heavy-duty truck sales in Canada are certain to break the annual record. And both the world and the North American economy are expected to slow next year. Statistics Canada records also indicate that the inventory to shipment ratio, a measure of how long it would take to exhaust the nation’s inventories at current shipment volumes, has held relatively stable throughout 2005. And there is also anecdotal evidence that some carriers pulled back on their rate demands earlier this year when shipment volumes went through a soft patch.
All solid evidence that the current truck capacity crunch should ease. But there is equally strong evidence that the capacity crunch will be with us for some time to come. That’s certainly what Thomas Albrecht believes and he is one of North America’s most knowledgeable financial trucking analysts (Forbes ranked him second in stock picking among road and rail analysts and he finished first in Wall Street Journal’s “Best on the Street” for industrial transportation). He cites several reasons, chief among them the trucking industry’s continuing inability to solve its severe driver shortage issue. The average age of a Teamster’s driver is 57 and the number of males aged 20 to 44 (the most likely candidates for driver positions) will be in decline in the US through 2007 before seeing only modest increases after that. Carriers on both sides of the border have been more aggressively recruiting women for driver positions with some fleet driver forces comprised of up to 15% females. But for the industry overall, females still make up less than 5% of drivers.
Nor has the shift among some carriers towards more short-haul transport to reduce driver stress had a significant impact on reducing driver turnover. Owner/operator numbers are also in decline on both sides of the border. In Canada, for example, owner/operator numbers are down more than 12% since their height in the late 90s. And productivity increases for US carriers peaked 6-7 years ago, according to Albrecht. Transport Canada data shows trucking productivity has not seen a significant increase for more than a decade while the new hours of service regulations in both Canada and the US are expected to negatively impact productivity.
As Albrecht succinctly put it, trucking is on a treadmill; it’s just running in place.
He also took issue with the significance of the record volumes of truck purchases among North American fleets. Despite the booming orders for new iron, the trailer to truck ratio has actually declined 20 of the past 21 months. And there is no significant increase in the number of small carriers or any significant improvement to their financial performance, both usual indicators of an increase in capacity.
Easing of capacity concerns? According to Albrecht, that’s no more than wishful thinking. A few quarters from now we’ll know if he’s right but perhaps most telling is the response from our own survey respondents. Although they reported their concern about truck capacity is easing, four out of five still expect rate increases for 2006 with 53% expecting to pay 4% more or higher.
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