From SCDigest's On-Target E-Magazine
May 4 , 2011
Logistics News: Market Trends Moving in Favor of Truckload Carriers, Analysts Say
Almost No Carriers are Adding Capacity Even as Demand Rises, Stifel Nicolaus Analysts Say; Some Seeing Double Digit Rates Increases; "Clear Need" to Raise Driver Pay
SCDigest Editorial Staff
Analysts John Larkin and Michael Baudendistel of investment firm Stifel Nicolaus have spent the last few weeks meeting with a series of truckload carriers, both public companies and private firms.
Below, we summarize their conclusions from a recent research note. Though targeted at the investment community, these thoughts are equally relevant for shippers - and the news isn't good.
SCDigest Says: |
 |
| There is a "clear need" for carriers to increase driver wages, Larkin and Baudendistel say, adding to operating costs that will ultimately go into freight rates. |
|
What Do You Say?
|
|
|
|
Rates are Heading Higher
Larkin and Baudendistel say that on average, US truckload pricing is moving up in the mid-single digits percentage-wise year over year, and sometimes increasing by as much as low double digits percentages for some shippers.
Part of these effective rate increases is coming as a result of improved freight and customer selection by carriers, they say, the favorable supply-demand balance is now allowing carriers to be a lot more choosy.
"In effect, carriers are getting price increases and are, given the tightening supply-demand dynamic, engaging in constructive yield management," Larkin and Baudendistel say.
They add that larger carriers are taking price increases direct to shippers - for those shippers that have been bold enough to re-bid their freight in this market.
Larkin and Baudendistel heard from one carrier that said it had just received a larger rate increase from one shipper than the than requested.
"Shippers seem willing, in theory at least, to pay mid-single digit increases today in lieu of low double digit increases tomorrow," Larkin and Baudendistel write.
They note that price increases can take the form of base rate increases and/or fuel surcharge modifications. In general though, few carriers are happy with the current state of affairs on the fuel surcharge front, where tough tactics by shippers are sometime not matching rising fuel costs.
Larkin and Baudendistel say that today, perhaps unlike the past, most carriers are not interested in earning a profit on their fuel surcharges. Rather, they simply desire to "be made whole," especially when it comes to fuel expended for running out-of-route and empty miles, fuel burned while idling, and fuel consumed by temperature control units.
Smaller carriers have even less leverage in the broad pricing arena and have generally been less successful than large carriers with price increases. Brokers have generally been able to pass most of if not all of their rising costs of purchased transportation through to their customers, Larkin and Baudendistel are finding.
Shipper Demand Picking Up into Q2
The tough weather in 1Q weather is over and retail stores are stocking often bulky (i.e., tough to miniaturize) Spring and early Summer merchandise. As long as the economy continues to grow in the 2% to 3% range, or faster, volumes should continue to seasonally build as inventories across most links of the supply chain are generally lean, adding to capacity concerns, Larkin and Baudendistel note.
(Transportation Management Article Continued Below)
|
They also see driver shortages as a looming issue. 
