Truckload rates strong going into the fall peak
September 28, 2011
Despite the weak economy truck pricing has continued to show strong growth. Truckload rates increased by approximately 7% during the second quarter. This is a slight acceleration from the 6% rate seen during the prior 2 quarters. We anticipate seeing a further increase during the fall shipping season, but the weaker economic environment will likely keep increases below the double-digit mark.
Prior to Q2, rates had been growing within a very narrow band of about 5% for a full year. Truck pricing is in the midst of an upswing as carriers are recouping significant cost increases. Recent data suggests that carriers are reducing the normal lag between cost and price increases. Carriers are becoming increasingly aware of their pricing power – even amid the weak economic conditions that have existed for most of the year.
The impact of falling fuel prices will be to slow the growth rate of shippers full cost rate (includes fuel). However, driver costs increases, high new equipment prices, and a tight capacity environment will keep rates less fuel well above the 5% mark.
After the fall shipping season, we expect rates to fall back towards the 5% rate that we have been seeing for the last year. That is, until the regulatory impacts finally come. As noted in other posts, the actual start of these regulations may not come until 2013 or 2014. When, or if, these rules come into play then pricing growth will start to accelerate again. We continue to anticipate a strong pricing environment for the next 2 or 3 years. Even absent the regulatory impacts pricing would still remain near the 5% mark for the foreseeable future – a more mild, yet reasonable, operating environment.
Most of the economic data we are seeing right now points to a higher level of uncertainty than we’ve had to deal with for the last year or so. Despite the weakness in the economy we still remain bullish on transport pricing. Why? The quick answer lies in the driver issue. Even with the weak economic recovery that we are currently in, the driver shortage is over 100,000. If the economy stayed slow for the next year we would probably start to get back to equilibrium. That is if we didn’t have a new wave of federal regulations coming into effect during 2012. The timing remains uncertain, but if it occurs it could effect the driver supply by more than 200,000 drivers. That keeps more than enough of a market shortage to keep rates strong even in a soft economy.
Outlook remains strong
After dropping 10.9% in 2009, industry rates (excluding fuel surcharges) rose 4.4% in 2010. We expect to achieve at least a 7% gain in pricing for the next several years, from 2011-2013. If regulations are delayed we would still anticipate seeing rates average growth of nearly 5% in 2012 and 2013. A weaker recovery, or mild recession, would further weaken rates but they would be unlikely to go significantly negative.
If you add in the fuel component, we saw rates drop 17.8% in 2009 and then rebound 7.5% in 2010. The spike in fuel costs in early 2011 will push rates higher, up nearly 12%, before slowing down to growth of only 7% in 2012 and 2013.
Our truckload rates data is based on publically-available data from security analysts and trade organizations. We then forecast the cost and margin elements, factoring in inflation and industry conditions. The figures are for rate-per-loaded-mile (less fuel surcharge), seasonally adjusted and are indexed to 2003Q1.
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