More trucking company failures and higher truckload rates may be coming sooner than many shippers think. “I think by May we’ll really see rates start to go up, and not just small increases,” said Lana Batts, managing director of Transport Capital Partners.
She believes it will be much more difficult for small carriers that held on through the recession to survive the recovery, and the rising value of used trucks may be the deciding factor. “It will be easier for financing companies to finally pull the plug” on companies that are behind on payments, Batts said.
During the recession, the value of trucking assets, including real estate, was so low many banks extended credit terms rather than liquidate carriers and risk losing money. Banks are less likely to be patient with carriers that can’t make money in a recovery.
Smaller companies also will find it increasingly difficult to pay licensing fees, maintain trucks, cover rising fuel costs and recruit and keep drivers, Batts said. “The little guy is running harder than ever and making less money than ever,” she said.
Batts thinks more capacity already has left the industry than many consultants and analysts have reported. “It’s not so much the number of carriers as the number of trucks. And you have to count those that weren’t produced, not just those that were parked.” She estimates capacity may have been cut over the last six quarters by 300,000 trucks.
Others aren’t convinced capacity will shrink quickly, or rates trend much higher. Morgan Stanley freight analysts Adam Longson and William Greene said the recovery pace has slowed, with their Truckload Freight Index flat to down in recent weeks. “Capacity must become scarce before large rate hikes are required,” they said.
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