Soft trucking spot market largely decoupled from contract market

An informal poll of private carriers by Stifel’s transportation group found that carriers have been able to push through contract price increases in the 4 to 8 percent range despite lower than expected demand.    The North American trucking market is trudging through a softer-than-expected third quarter, but carriers have indicated they are not having trouble pushing modest contract rate increases, according to an informal poll of carriers conducted by the investment bank Stifel.
   Stifel’s Transportation & Logistics Research Group canvassed opinions from the top 25 privately-held carriers, of which 15 responded to six questions about demand levels, rates, and driver recruitment.
   “Privately held carriers are not constrained by what they may or may not have said on last quarter’s conference call and can call it exactly as they see it,” Stifel said of the survey.
   The private carriers said that a weak spot market has not impacted their efforts to raise contract rates this year, generally in the 4 percent to 8 percent range.
   “Customers are more educated on the driver shortage and the cost of transportation and thereby are easier to sell an increase to,” one dry van operator said. “Not that any increase is easy to attain, but the conversations are less confrontational and the customer is more willing to allow a larger increase than in the past.”
   Meanwhile, the carriers polled almost unanimously said increases in driver pay are marginally helping their recruitment and retention efforts. One carrier called hiring and retention “murder,” while another said it continues to spend “record levels” on advertising and recruiting costs. Another carrier noted that pay increases have been more effective in recruiting drivers than retaining them.
   The carriers also said shippers are more willing to collaborate with them to turn equipment more quickly and improve asset utilization.
   “They realize this is the best avenue to lower transportation spend,” one carrier said.
   Stifel concluded that lower valuation for publicly-held carriers has been driven by investors unable to see that spot pricing and contract pricing are more decoupled than they have been historically due to a probable driver shortage on the horizon.
   “We suspect that some investors, with a shorter term investment horizon, had been following the decline in spot market pricing earlier in 2015, and concluded that lower spot pricing should lead to lower contract pricing,” Stifel said. “This time around, perhaps due to the anticipation of a capacity crisis (given the driver shortage and the coming onslaught of federal safety-oriented regulations), spot prices and contract prices have remained de-linked throughout 2015. And capacity has generally remained in check as slightly improved driver availability has not encouraged companies with trucks still parked against the proverbial fence to increase their fleet size.”