Truck rates to rise on capacity shortage

Truck rates to rise on capacity shortage    Shippers should expect trucking rates to rise as motor carriers capitalize on a relative shortage of capacity caused by a range of factors from the 2009 demand downturn, according to a note from the consultancy IHS Global Insight.
   'Capacity in the motor carrier segment has decreased from its overabundance of a few years ago,' said Charles W. Clowdis Jr., managing director of transportation advisory services for IHS Global Insight. 'To provide increased capacity as the economy recovers, rate increases are a certainty. Ample capacity will be required to enable suppliers to ship to factories that in turn ship to customers and distribution centers.'
   Clowdis explained that the 2009 crisis thinned the herd of a fragmented trucking industry.
   'Many carriers have exited the market during the economic downturn due to declining tonnage and shipments, as well as heavy debt service demand,' Clowdis wrote. 'Owner-operators, those still in the marketplace, will also offer less capacity as the economy recovers. It is also extremely likely that a repeat of the driver shortage will return and intensify as drivers turn instead to construction and other jobs as the economy recovers. Higher pay for drivers will also necessitate rate hikes.'
   Environmental and debt servicing pressures will also drive up rates, Clowdis said.
   'Many carriers, both truckload and less-than truckload, have not replaced their fleets on a schedule that puts the most fuel-efficient equipment requiring less maintenance into service,' he said. 'In effect, carriers must increase their margins to at least 8 percent. Those carriers that have held their rate levels stable will also be pressured as their competitors offer increased capacity to the market.
   'Rates will also be driven upward by the need to service debt incurred by many of the carriers that resorted to borrowing to sustain themselves during the downturn, some at high interest rates.    Shareholders that have been patient will also expect improvement in share prices and dividends driven by better earnings. These demands must be met through increased rate levels.'
   For the first time in five years, motor carriers may be in a position of strength rather than shippers.
   'Since 2006, the rate levels in the transportation marketplace have favored the buyer of transport service,' he said. 'More capacity pursued less available freight as the economy retracted. As capacity decreases and becomes more valuable to serve the released consumer demand, carriers will become more aggressive in seeking rate increases. Increases in the 7-10 percent range have already been signaled by the industry. While carriers have learned important cost-reducing lessons in the downturn, increased capacity has enabled many of these. As freight tonnages increase, many of those savings will disappear.'