2012 State of Logistics: Truckload: Capacity in equilibrium with demand…for now

The recovery carriers expected is not exactly the one that they’re getting, however.Truckload volumeshave been building gradually through the year, but it’s not the robust recovery some economists had been predicting. But carrier executives say that they prefer this slow, steady recovery to a sharp uptick, which could result in equipment and driver shortages.

While freight volumes are nothing to brag about, carrier profitability is. According to Eric Starks, president of FTR Associates, a leading freight forecasting firm, TL margins are way up in the past year. As the accompanying chart from trucking analyst firm SJ Consulting shows, TL operating margins for the public TL carriers are up 6.6 percent for the 2012 first quarter—more than double what they were just two years ago.

Starks is predicting that freight will grow slightly faster than his forecast of a 2.5 percent rise in Gross Domestic Product (GDP) and will remain “above its historical average” over the next several years. While the last peak year for trucking was 2006, Starks is predicting truckload demand won’t return to its peak until 2015.

“The current environment isn’t bad,” Starks said. “But we’re not getting back to the peak for a few years.”

Carrier executives say that the TL recovery is progressing relatively well, with TL supply and demand pretty much in “equilibrium.” In turn, this is allowing some rate increases that industry analysts say
is necessary just to offset the sharp price increases for their equipment, fuel, and drivers.

Truckload rates are “pretty good,” said Dan England, chairman of Salt Lake City-based C.R. England, the nation’s eighth-largest TL carrier. “However, they’re never as good as you want them to be.”
Most analysts are forecasting 4 percent to 6 percent rate increases in the TL sector this year, depending on geographic lane, a shipper’s individual freight characteristics, and the shipper’s relationship with their carriers. But that forecast rise in rates might only be allowing TL carriers to keep pace with their costs, which are soaring.

Besides the sharp spike in diesel costs, TL carriers have endured at least a 25 percent rise in the cost of Class 8 trucks, rising labor costs associated with tighter driver supplies, and skyrocketing insurance.

“There is an economic schizophrenia,” said Bill Graves, president and CEO of the American Trucking Associations. “Some days there are signs that things are encouraging, then the next day there’re numbers that are not.”

Manufacturing is continuing to expand steadily, aiding in TL demand—and truckers prefer that gradual increase because it is so difficult to find qualified drivers now. “Trucking is a very tough business and driving a truck over the road is a very hard life,” Graves said.

Then there’s the issue of what fuels those trucks. Trucking consumes about 155 billion gallons of gasoline and diesel a year, meaning that the 2012 fuel tab for trucking will exceed $600 billion—a new record.

Trucking officials say the wild card is the 2012 presidential election, and whether Democrats continue to control the White House and House of Representatives. “We’re very fearful of what that regulatory agenda might look like in a second term,” Graves said.