Analyst calls reasons behind freight malaise a ‘mosaic’

BB&T freight analyst Tom Albrecht told the LeanLogistics user conference Tuesday that there’s no single driver of loose capacity in domestic transportation markets.    If you’re looking for a reason why trucking capacity is loose, don’t look for a single reason, said Tom Albrecht, managing director at BB&T Capital Markets.
   Speaking at LeanLogistics’ ClientConnect conference in Chicago Tuesday, Albrecht described the factors driving the current freight malaise as a mosaic.
   “It’s just really confusing right now,” he said.
   Albrecht described how lower industrial production (which sunk for most of 2015, save for a random spike in July), a commodities bubble, and the relaxation of capacity-constricting regulations have all contributed to lower demand for freight.
   Another indicator is that revenue and capital expenditure from S&P 500 companies decreased in 2015.
   “Even a small drop makes a difference, because cap ex drives freight activity,” he said.
   Interestingly, Albrecht said lower gas prices also didn’t translate into more spending in “freight-centric” industries. Instead, consumers used the money they saved on gas to spend more on restaurants and events. Additionally, a large of chunk of that gas “tax cut,” as he called it, was offset by higher average health care costs.
   Excess commodities supplies around the world were also having an impact on freight markets. What’s different about this bubble, Albrecht said, is that it isn’t a U.S.-based bubble, as the tech and housing market ones in the last decade were.
   Meanwhile, the suspension of federal hours of service regulations for truck drivers in 2015 added more capacity than the industry might have imagined.
   Whereas the going theory was that the regulations were stripping out roughly 3 percent of capacity (with that 3 percent coming back online when the regulations were relaxed), Albrecht found when he polled roughly 100 carriers that the actual impact was much higher. Around 45 percent of carriers said the regulation was decreasing their capacity by 5-8 percent, and another 15 percent said it was taking out more than 8 percent.
   Albrecht also cautioned shipper attendees at the event to heed to the warnings of their carriers about difficulties in finding new drivers. He said carriers’ concerns aren’t scare tactics, adding that the industry was having trouble recruiting drivers because drivers had effectively lost $4 per hour in disposable income in the last 40 years after accounting for inflation.
   According to statistics he showed, in 2013, 26 percent of drivers were 55 years or older, compared to 17 percent in 2003 and 11 percent in 1994. Barely 20 percent of drivers in 2013 were under 35.
   Related to driver recruitment and retention, Albrecht said it’s unclear how a soon-to-be-unveiled Commercial Driver’s License Drug and Alcohol Clearinghouse would impact capacity. Albrecht said it could be 1 to 5 percent.