Truckload volumes and rates started to decline in late 2007 and throughout 2008, then took a nose dive as the Great Recession took hold with the financial collapse in Fall of 2008, with many carriers pricing during 2009 at or below their variable operating costs.
While things have modestly stabilized, shippers are still driving hard bargains in contract rate negotiations, even as the economy recovers, with the supply and demand equation likely to stay strongly in the favor of shippers into 2012.
So says John Larkin, the respected transportation industry analyst at Stifel Nicolaus, based on a variety of recent conversations with shippers and carriers.
Larkin said he sees the following current market dynamics:
Continued increases in the sophistication of shipper bidding techniques and technologies are still yielding meaningful rate reductions: Larkin says that TL contract rate reductions “are bigger than expected” and “coming from carriers of all sizes and shapes, including those that are spearheading the pending capacity shortage rhetoric,” even after two years of steep drops in rates.
Contract truckload rates will probably not move up until 2011, at the earliest, and that will simply reflect underlying carrier cost increases: While there is likely to be some modest rates increases in 2011, those will simply reflect increases in driver pay and costs associated with 2010 (and beyond) EPA compliant engines. The implication is that significant truckload rate increases likely will not occur until 2012, Larkin says.
Capacity is tight, however, in certain geographic sectors of the US: Larkin’s contacts tell him that Minnesota and Wisconsin, for example, are short refrigerated truckload capacity at present. However, “Capacity tightness has been "bouncing around" from one geographic region to another and has not been homogeneous across the US,” according to Larkin.
Shippers keep knocking down “pockets” of exceptionally high rates that have existed for years: Larkin says one carrier he spoke to cited a large East coast shipper that recently was able to knock down rates by 30-35%. “This phenomenon has been particularly noticeable in lanes historically viewed as backhaul lanes,” Larkin says. “With backhaul lane pricing under pressure, carriers must endeavor to price headhaul lanes adequately, in effect to make up the difference. This would seem to be "easier said than done” in this environment, however.
While refrigerated TL volumes and rates have held up better than dry van volumes, additional carriers seem to be showing interest in entering the refrigerated truckload market or expanding their refrigerated truckload capacity: For example, Larkin knows a carrier that was formerly focused only on flatbed markets that is now adding refrigerated trailer capacity for the first time. Larkin says it is possible that some larger carriers may take a look at Knight as an acquisition target in order to "beef up" Knight's scale of operations in the refrigerated truckload sector.
Some customers are again willing to pay for expedited/high service capabilities: In markets such as the auto assembly markets, “shippers are now willing to consider rate increases in exchange for expedited, time-definite truckload services (especially when driver teams are involved),” Larkin says.
(Transportation Management Article - Continued Below)