TL rates slowed during Q1
June 19, 2012
Truck rates are poised at the edge of a significant event. Recent data has pointed to a slowing of rates, but we believe that phenomenon should be short lived. Truckload pricing fell for the second straight month in March, dropping 1.4% from the prior month. Year-over-year growth slowed dramatically, up just 1.1%. This is down significantly from the 5%+ growth that we have seen for the last year or so. Our expectations for the balance of 2012 have been pulled lower but we still expect to see an improvement from where we currently stand.
Outlook stays strong
The surprise of this recovery was the ability of the industry to sustain increases well above inflation despite the slow growth in freight demand in 2011. After dropping 10.9% in 2009, industry rates (excluding fuel surcharges) rose 4.4% in 2010. The rebound continued in 2011 with growth of 5.8%. Growth will slow in 2012 but remain positive, up 3.3%. We then get strong growth in 2013 and 2014. Year-over-year rate growth should get back above the 5% mark in early 2013. We anticipate seeing growth of 7.0% in 2013 and further acceleration to 8.8% in 2014. The strength in 2013/2014 is due to the inclusion of the HOS rules. That will help move pricing higher until at least mid-2014.
Truck rates are poised at the edge of a significant event. Slow freight growth in 2011 and early 2012 has kept recent increases below those of the last recovery, but conservative capacity management has kept pressure on the market.
Renewed economic growth, or an increase in regulatory drag, would push rate restraint over the edge, returning us to the double-digit levels of the previous recovery.
The current capacity utilization level is enough to maintain inflation-level increases – but nothing further. Despite the soft patch in both economic and freight markets during the latter half of 2011 (and early 2012) fleets have maintained a high enough level of utilization to maintain pricing. That pricing waned during the first quarter but we should be able to make up some of that lost ground during the rest of the year. The capacity pressures will increase substantially in 2013, when HOS regulations change.
Excepting early 2011, fuel prices and freight growth have not moved together during this upturn. As one slows, the other accelerates. This is, so far, in contrast to the situation during the last upturn when freight growth, fuel prices, and regulatory drag all moved upward together in 2004 and 2005.
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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