Market InsightNews

Shippers expect volume, pricing increases to continue

Shippers are anticipating continued volume increases, tighter capacity, and further rate increases according to a Morgan Stanley survey. (Photo: Shutterstock)

Tighter capacity and more freight to move are among the highlights of the latest Morgan Stanley Freight Pulse 49 survey. Shippers, though, are retreating from their rosy view of the economy, dropping to a survey reading of 7.3 on the state of the economy. The last reading, in June 2017, was 7.4. Morgan Stanley notes that the reading is still the second-highest on record, though.

The survey found that shippers remain bullish on truckload volume and pricing with expectations of volume and pricing increases continuing. The survey believes truckload pricing will rise about 7%, up from 5.2% in the last survey, and intermodal pricing will also increase about 4.5%, up from 3.3% in the last survey. Shippers, though, remain concerned about service levels.

Carriers are in a different position. According to the latest FTR Trucking Conditions Index (TCI), the environment for carriers has never been better. The TCI’s February reading of 15.41 is the highest ever recorded by the index, dating to 1992, and is four points higher than January with room to continue rising, FTR says.

“For carriers, there is a feeling of ‘Let the Good Times Roll,’ and the data is backing that up,” explains Jonathan Starks, COO. “We are approaching record level spot rates, freight demand remains elevated, and the economy continues to grow at a good pace. If there is any frustration, it is having to turn away loads due to a shortage of drivers. We have had record levels of trucks and trailers ordered in the first quarter of 2018 and, as that equipment is delivered, we may see some of the capacity pressures relieved.”

FTR’s Truck Loading Index is predicting 4% to 6% growth year-over-year into 2019, the firm says. Still, FTR is finding some of the same concerns shippers noted in the Morgan Stanley survey.

“[It is] more likely is that freight demand will gradually slow over the course of the year,” FTR says. “This can be a challenging time for carriers as they try to balance the short-term and long-term needs of the business. This freight environment won’t stay around forever, and both carriers and shippers will be striving to balance those competing requirements.”

Within the freight segments, the Morgan Stanley survey participants had more favorable views of auto, manufacturing and chemicals and unfavorable views of food, retail, metals and mining.

“The percentage of shippers who plan to increase inventory levels is still at an all-time high,” the survey notes. “However, shippers expect tighter capacity in 6 months across all truck modes as well as rail and intermodal – while also noting sharply deteriorating service levels across all transport modes (with rail, intermodal, TL and barge leading the declines).

The survey found that 30% of shippers expect to increase inventory levels and 39% expect to maintain current inventory levels.

Truck volumes should grow more than 4% in the truckload segment with intermodal (3%), regional LTL (2%) and national LTL (2%) trailing. The expectation for regional LTL growth has dropped, though, from about 2.5% growth six months ago. Intermodal is up sharply, though, rising from under 2% to nearly 3%.

With those volume growths is rate growth, with truckload rising close to 8% – up sharply from the previous survey that suggested about a 2% increase.

In the parcel segment, the survey expects rate increases to be lower than expected, with an average rate increase of 2.3% versus 2.8% in the prior survey. Shippers also note that FedEx has increased discounts while UPS has decreased the number of available discounts.

Volume in the parcel segments is forecast to be less than expected six months ago, the shippers note, although not significantly.

Rail is facing a mixed bag for 2018 based on shippers’ views, with pricing expected to continue rising but volumes not expected to be as high as first thought. The survey now believes volume increase of 1% to 3% over the next six months. It also showed that rail service reliability is at an all-time low.

The survey did find continued strong support for app-based brokers, with more than 50% of respondents now saying they would use an app-based broker. This is double the rate from a year ago. Of those saying they wouldn’t use an app, 66% cited a lack of trust as the reason but many noted the willingness once start-ups prove their legitimacy. “We believe this indicates willingness to embrace the option with more familiarity,” Morgan Stanley wrote.

Specifically, when asked why you would not use a phone/app-based broker, 19% said they don’t want to use apps to move freight, 15% cited comfort levels with current brokers, and 19% said they don’t trust service levels of new entrants.

When asked if they would use a phone/TMS app-based broker instead of a traditional 3PL broker if it offered similar service and data analytics at 10% to 15% cheaper price, the survey found that 52% said they would. That is up from 25% last June.

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Brian Straight

Brian Straight covers general transportation news and leads the editorial team as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler.