Rates weakest since early 2010

Easing truckload rate increases reflect the soft freight market of the last 18 months and declining oil prices. Initial reports indicate that fleets have retained fuel price increases not included in fuel surcharge calculations, enhancing margins. We do not expect a further continuation of the first half’s disappointing rate increase; however, our expectations for the second half of the year have continued to move lower.

After dropping in February, pricing has essentially maintained that level the last three months with a further modest downtick in May. After dropping 1.5% in February, rates inched up 0.1% in both March and April before dropping 0.4% in May. Year-over-year growth has continued to slow, up just 1.4% in May. Initial data for June shows that the recent weakness will persist through the end of the second quarter. This is down significantly from the 5%+ growth that we had seen for the last year prior to February.

Outlook
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 is slowing substantially in 2012 but remains positive, and will be up 3.1% for the year. We then get stronger growth in 2013 and 2014. Year-over-year rate growth should get back above the 5% mark by mid-2013. We anticipate seeing growth of 5.5% in 2013 and further acceleration to 9.1% 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.

Analysis
Rate increases are likely to stay under 3% for the balance of 2012 until tightening capacity moves them higher in 2013. Before fuel surcharges, year-over-year increases have shrunk to the 1-2% range, well below expectation. This reflects weaker freight demand and slower regulatory change than expected. The next crisis will come in 2013 when the FMCSA implements its new HOS regulations.

Note that FTR’s rate data indicates favorable recovery of fuel increases beyond fuel surcharges. The latter seldom covers the entire fuel exposure, and fleets are alternately good or bad at putting the uncovered portion in the general rate base. This quarter they have been unusually good at that.

Rate increases are currently low due to the delayed reaction to soft freight volumes in mid-2011 through the early portion of 2012. Despite the Q2 bottom, rates are expected to improve for the balance of the year.

Recent rate increases are 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.

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.

NOTE:
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.