Truckload carriers have high hopes for 2011, but how high those hopes fly depends on how much weight a company carries. As 2011 approaches, large and small trucking companies are separated by a gap in expectations, a gap that’s only getting wider.
Survey results released this month by Transport Capital Partners show motor carriers with more than $25 million in annual revenue are significantly more optimistic about their ability to raise rates and win business next year than their smaller competitors. They’re also more bullish about replacing trucks.
“Larger carriers are more upbeat in this environment,” said Richard Mikes, a partner at the trucking consulting firm and analyst. “More of the carriers over $25 million in revenue saw rates go up in the last three months than did the smaller carriers.”
As a group, smaller carriers are becoming less optimistic. “They are not expecting as much in terms of increased volume, they don’t foresee as much in terms of increased rates, and they expect credit availability to deteriorate,” Mikes said.
The survey results support claims that larger trucking operators with lower purchasing costs and networks that can be scaled are getting bigger as smaller carriers face rising costs that limit their flexibility and ability to compete.
The result could be, if not an exodus, a steady stream of smaller trucking companies being sold or shutting down, thinning a group of carriers that don’t receive much media attention but do much to prop up shipper’s distribution networks.
The Federal Motor Carrier Safety Administration’s CSA 2010 initiative is just the latest program expected to ratchet up pressure on small trucking companies.
“You’re going to see more consolidation in our industry than you’ve ever seen before,” said Russell L. Gottemoeller, president of Continental Express, a Sidney, Ohio-based truckload and dedicated carrier that this month purchased Carolina Refrigerated Transport, a smaller dedicated carrier in Gaffney, S.C. “The trucking industry is getting harder and harder for the small mom-and-pop operation.”
That should be especially troubling for small businesses, which rely on smaller trucking operators to handle volumes of freight and shipping schedules that would be uneconomical for larger trucking companies.
Smaller shippers “would be more vulnerable” if more small carriers go bankrupt or shut down, Mikes said. “A lot of these smaller entrepreneurial carriers grew up with their shippers in the local community. There’s a close tie there,” he said.
The loss of small carriers also would affect larger shippers, brokers and carriers who use them to fill backhauls, balance lanes and handle overflow freight.
The growing disparity between larger companies with more resources and scale and smaller truckers was clear in the results of TCP’s latest business expectations survey. Although 50 percent of all carriers said they increased rates in the last quarter, 56 percent of larger trucking companies raised pricing compared with 44 percent of smaller carriers. Rates dropped at 11 percent of the smaller carriers surveyed. Larger carriers also raised rates higher than small carriers.
In the next year, 85 percent of the larger carriers expect rates to increase, compared with 65 percent of the smaller carriers surveyed by TCP. More small carriers said rates would remain the same, and 4 percent said pricing would decrease.
When it comes to freight volumes, 56 percent of smaller carriers expect an increase in the next year, compared with 75 percent of larger firms. More than a third of the smaller carriers — 38 percent — said they expect to handle less freight in 2011.
The owners of more small trucking businesses are considering selling or liquidating their companies if they don’t increase freight volumes in the next six months, Mikes said. In the last two quarters, that number has picked up for all carriers surveyed by TCP, but among smaller trucking companies, “it’s 25 percent,” he said.
That could be good news for larger carriers looking to expand their reach by purchasing “active capacity.” Trucking acquisitions and mergers picked up in the past few months. In addition to Continental Express’s acquisition of Carolina Refrigerated, Georgia-based Brown Trucking acquired West Brothers and Schrader Trucking and Online Transport bought Frontier Transport from Vitran.
But smaller carriers must be healthy to be a good acquisition target, Mikes said. And they will have to have good CSA safety performance scores.
“We’ve got a lot more larger carriers that are looking to buy,” Mikes said, “but no one’s going to pay more for a fleet than it’s worth on the market.”
Contact William B. Cassidy at firstname.lastname@example.org.