Logistics News: Quarterly Bear Stearns Shippers Survey Suggests Trucking Capacity Glut may be Reaching Bottom

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- March 10, 2008 -

Logistics News: Quarterly Bear Stearns Shippers Survey Suggests Trucking Capacity Glut may be Reaching Bottom

Still, Shippers Expect almost No Truckload Rate Increases before Fuel Surcharges; Perhaps Surprisingly, Increased Diversion to Rail; the Advantages of Parcel Bidding

SCDigest Editorial Staff

SCDigest Says:

Shippers expect an effective 2008 base rate increase of just 0.4% and 0.8%, respectively, from their TL and LTL carriers, prior to fuel surcharges and accessorial costs.

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The always insightful Bear Stearns Quarterly Shippers Survey was released this week, covering responses from 200 shippers for the fourth quarter of 2007.

Since 2006, the survey has found consistently strong perceptions of heavy over-capacity in both the truckload and less-than-truckload (LTL) markets, and that continues again for the Q4 responses, but at declining rates. The report suggests that this could signal we are near a bottom in the supply-demand cycle in the transportation market.

While 65% of shippers believed in Q4 that there was overcapacity in the truckload market, that was actually down from an astounding 81% who felt so in Q3 2007 (a record level for the survey). In LTL, while 62% saw overcapacity in Q4, that was also down from 75% in Q3 2007.

“Anecdotally, we believe shippers’ Requests for Proposals (RFPs) in the market during early 2008 will look similar in scope to the record number of RFPs conducted in first-quarter 2007, as we believe shippers continue to try to take advantage of the soft environment to lock in flat to down rates in both TL and LTL,” the report’s authors, led by Ed Wolfe, write. “We also heard of several large shippers seeking to lock in two-year TL and LTL contracts rather than the typical one-year contract.”

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There is a wealth of information available in the full report, available at the Bear Stearns site (See Fourth-Quarter 2007 Shippers Survey.) We highlight some of the other key findings below:

Possible “Inflection Point” in Moving Freight from Truckload to Rail: Shippers indicated that on average they had shifted only 3.7% of freight from rail to truck – down substantially from an average 9.6% of freight in Q3 and 8.1% in Q4 2006. At the same time, 6.7% of volume went from truck to rail in Q4, versus just 4.8% in Q3 2007 and 2.9% in Q4 2006. The reports notes that this is a change from the past couple of years, when TL overcapacity combined with strong rail pricing caused more traffic to move from rail to truck. The report notes that rising fuel costs may be at play here, as rising fuel prices “could continue to drive the spread between total transportation costs wider as rail fuel surcharges are relatively lower than TL surcharges.” Shippers estimate the cost advantage of rail versus TL in competitive routes as currently about 14%.
Opportunities to Move TL to Rail Vary Signicantly: As shown in the somewhat mis-titled chart from the report, 50% of shippers believe they can move no more than 25% of their current truckload freight volumes to rail. About 14%, however, believe they could move more than 75% of their current TL volumes to rail.

Expectations are for Almost No Base Trucking Rate Increases: Shippers expect an effective 2008 base rate increase of just 0.4% and 0.8%, respectively, from their TL and LTL carriers, prior to fuel surcharges and accessorial costs. Surprising to the report’s analysts, a high 81% of shippers, however, expect rising prices for dedicated truckload rates for 2008.
Shippers Achieving Strong Benefits from Parcel Bidding: Almost one-fifth of respondents say they solicited bids from one or more parcel carriers in Q4, and slightly more than half of those solicited multiple carrier bids (e.g., UPS, FedEx, DHL). “In the cases where either single or multiple bids were received, 71% of respondents received rates below the pre-bid level, regardless of whether they went with the incumbent or the new service provider,” the report found.
Expected Rebound in Ocean Rates: Shippers expect on average a 3.1% average year-over-year price increase in ocean containership rates for 2008 (net of fuel), up from a decrease of 0.4% anticipated during the fourth quarter last year (for 2007 rates, and a 0.3% decline reported in third-quarter 2007.

There are nearly 75 pages of data and graphs in the full Bear Stearns report.

Anything strike you about the data in the Q4 Bear Stearns report? Let us know your thoughts at the Feedback button below.