Tight capacity and soaring spot rates has customers looking to increase dedicated capacity.
U.S. Xpress (USX) chief executive Eric Fuller says Hurricane Florence has the potential to impact freight markets well beyond its landfall as supply chains catch up with storm-related delays. Florence adds to the potential tightness he expects in the fourth quarter amid stronger demand from retailers to stock up for the holidays.
Speaking at a Morgan Stanley investor conference, Fuller says trucking demand remains healthy, with little indication that the environment will change soon. But he says the strength in spot rates may begin to slow as more customers gravitate toward dedicated trucking through next year.
Fuller says the trucking market has “been tight, in our opinion, since the hurricanes of last year. The market really tightened and stayed tight since then.” The current quarter is exhibiting normal seasonality, he added.
“We don’t see anything that would give us any indication that things are different than over the last 12 months,” Fuller said. “I don’t see anything that gives us pause.”
He says the demand growth could accelerate in the fourth quarter thanks to an extended peak season for getting products into distribution centers ahead of the holidays. Fuller says the peak season for trucking may start as early as October, rather than November, due to worries over finding capacity. Retailers are also front-loading their freight due in part to concerns about tariffs on consumer good.
“There’s legitimate concerns about capacity,” Fuller said. “Some retailers are stocking their inventory earlier than usual in concern about not being able to get capacity when they need it in November.
“We are also hearing there’s some people that are ordering ahead of more expensive ordering due in part to tariffs,” Fuller said. Both of those factors “will lead to higher volumes in September and October than what you would normally see going into peak season.”
Hurricane Florence will add a complicating factor to peak shipping season due, Fuller says. Restocking of good and delivery of emergency supplies will only draw more capacity away from regular freight needs.
“Everybody talks about what it does to the spot markets two weeks after, but the reality is that we see the effects of these storms three or four months out,” Fuller said. “There is true disruption to the supply chain.
“When you have these storms that hit a certain area, it completely changes your inflows and outflows from of that market, which will even affect inflows and outflows out of California. It really does have sweeping affects.”
Despite better demand the fourth quarter, Fuller says it may be tougher to show comparable growth as they did in the year-ago quarter as spot rates moderate from the torrid growth rates seen last year.
He says customers are likely to increase the amount of dedicated and contract capacity they have in the coming year to avoid paying higher prices in spot contracts.
“At some point there is a ceiling” to spot rates, Fuller said. “What we’ve seen is a big push in demand for dedicated. We’ve seen on the bid side of dedicated volumes up three-fold from what they typically would be. That’s a lot of customers.”