Strong market conditions continue to work in favor of motor carriers, reports FTR

By Jeff Berman, Group News Editor
November 14, 2014

Strong market trends continue to favor the trucking sector, which is a theme that has been intact for several months, according to the most recent edition of the Trucking Conditions Index (TCI) from freight transportation forecasting firm FTR.

The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight. According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are in a good range for carriers.

For September, the most recent month for which data is available, the TCI was 9.07, which was down slightly from August’s 9.10. Even with the slight decline, FTR said that this represents a positive reading that reflects strong underlying market trends.

The firm also pointed out that increases in the TCI over recent months have been largely spurred on by increasing rate gains, with the TCI expected to stay positive in the coming months, with little change expected until there is a material change in the economy or an increased regulatory drag on capacity, which remains tight. Although anecdotal reports indicate it has loosened to a degree, FTR said that capacity utilization is within 100 basis points of its all-time high and now at the “breakpoint” between manageable tightness and crisis.

“Spot market activity and rates have been easing, but this is to be expected at this time of year,” said FTR Director of Transportation Analysis Jonathan Starks in a statement. “Rates are still well above year ago levels and will stay that way until we lap winter conditions in January and February. The contract market is lagging on rate growth, but we still see a concerted upward shift over the last year. The combination of HOS changes in 2013 with weather events in 2014 was enough to move market conditions in truckers favor. Contract negotiations will take place during the winter slow season - we will see how much market clout the fleets are able to use. The real results will come later in the year. Successful shippers will be able to secure capacity and limit cost inflation by working with their carrier base rather than focusing on negotiating strength.”

As previously reported, industry stakeholders on the carrier side have indicated that purchased transportation is becoming more prevalent for shippers looking to secure capacity when and where needed in a crowded marketplace.

This approach has seen shippers looking to have a plan for dedicated contract carriage, especially for those that do not have the required resources for private fleets, which are gaining traction in terms of where carriers, especially larger ones, are growing.

What’s more, in addition with carriers able to choose between good and bad freight, carriers in recent months are more effectively able to push through needed rate increases, due to things like regulatory drag from HOS and CSA, tight capacity, and the need for a decent return on invested capital in order to properly invest in their fleets for future growth and asset-related expenditures, too.

Should capacity remain tight, as expected, it will translate into higher freight rates, wrote Stifel Nicolaus analyst John Larkin in a research note.

“After several years of flattish freight rates, rate increases have become more commonplace in 2014,” he commented. “With continued (albeit modest) economic growth and additional pressures on freight capacity (federal safety regulations, retirement of experienced operating professionals, underinvestment in our nation’s transportation infrastructure, etc.) larger increases are likely to develop. Shippers will need to pay up for sufficient capacity to satisfy their growing requirements. In effect, carriers will be able to allocate their scarce capacity to the most profitable shippers (not necessarily those that pay the highest rates, but often those that will collaborate with carriers to increase equipment productivity and reduce driver dissatisfaction).”