Capacity Crunch Time?

As much of North America thaws out from a brutal winter, the burning question in freight transportation is this: Was the heavy congestion experienced in many areas during the winter months solely a weather-related phenomenon, or is there something bigger going on? That would be this: Is the improving economy finally starting to reveal limits in transportation capacity?

The evidence isn’t conclusive, but there’s enough of it pointing in that direction to at least call out the possibility of a bigger story. Spot trucking and intermodal rates are rising, and analysts who follow trucking companies believe the carriers are now in the driver’s seat in contract negotiations.

It’s not as if a capacity crunch in trucking would be a surprise; analysts have been warning about one coming for three years, but it hasn’t happened because of the soft economy. Simultaneously, ocean import (but not export) volume growth is accelerating, and port drayage unrest resulting from lengthy turn times at marine terminals has occurred not just at ports such as New York-New Jersey that got slammed by winter storms, but at others such as Vancouver, British Columbia; Los Angeles-Long Beach; and Norfolk that see minimal weather-related disruption.

The problems at the ports have known triggers, of course: bigger ships, bunching of ship arrivals, antiquated terminal processes and restive truckers paid largely by the trip and thus hypersensitive to any delays at the ports. But the question as we get into the heart of 2014 is whether underlying economic growth is pushing up against systemwide freight transport capacity.

“This is a year to closely monitor signs for an economic uptick because it could have quick impact on the transport sector,” said Jonathan Starks, director of transportation analysis at FTR Associates. “If the economy stays stuck in slow-growth mode and the weather finally behaves, we can expect the extremely tight capacity to normalize by mid-summer. If, however, we can finally get some additional economic activity, especially in the vital manufacturing sector, the tight truck environment will persist and could significantly worsen.”

On ocean imports, the data point to higher volumes. Between 2008 and 2013, the average growth rate in U.S. containerized imports was 1 percent, according to PIERS, the data division of JOC Group. In 2013, imports grew 3.3 percent, triple the rate of growth in the six-year period. During the second half of 2013, imports grew 4 percent. JOC Economist Mario Moreno forecasts imports will grow 5.9 percent this year. These numbers make sense in light of the improving U.S. employment and housing market, which are key drivers in consumer spending.

In trucking, spot rates are going up and capacity constricting at a time of year when such trends are normally not seen, again, primarily weather-related, so far. The weekly national dry van spot rate compiled by DAT was $2.10 per mile, up from $1.95 at the end of 2013, a figure that itself was the high for 2013. The FTR Shippers Conditions Index for February “reflects an earlier-than-normal tightening of capacity” tied to winter weather, though it said conditions should improve.

The balance of power in trucking already is shifting to carriers. “We are approaching the time when asset owners will hold the cards in negotiations with shippers,” investment firm Stifel Nicolaus said in late March. Truckload carriers will be able to raise rates 4 percent this year, up from earlier estimates of 2 to 3 percent, according to BB&T Capital Markets.

“Capacity remains tight, demand is increasing, and we are gaining momentum with pricing,” Swift President and COO Richard Stocking said, as reported by JOC Senior Editor Bill Cassidy.

Intermodal rates also are headed higher. An index of 36 major U.S. intermodal lanes compiled by the logistics company IDS saw 11 weekly increases in the first 14 weeks of 2014, climbing 6.7 percent since the beginning of the year. Not so for ocean container rates, which continue to be guided by overcapacity.

What does all this amount to? In the past few years, many forecasts of a capacity crunch have been proved wrong. The analysts watching trucking are cautious, seeing the U.S. economy as continuing to bump along with continuing high levels of unemployment, high enough that Federal Reserve Chairwoman Janet Yellen recently pledged further actions to support employment. But the story is getting more interesting, and I agree with FTR, which said last week that “2014 may be a very volatile year requiring increased shipper attention to market conditions.”

Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell.

For the full story: Log In, Register for Free or Subscribe