Truckload spot rates are “flattening out” heading into the fall after rising sharply in the second quarter, according to a trucking industry executive, but longer-term contract rates are likely on their way up.
John Steele, executive vice president and chief financial officer at Werner Enterprises, said the contract rates that make up a larger share of the truckload carrier’s business will rise in coming months as stronger demand bumps up against tight capacity in the market.
“We’re in a position to take these weak-economy rates that we have in our contracts and replace them with good-economy rates,” Steele told the Credit Suisse Automotive & Transportation Conference in New York this week.
By The Numbers: U.S. Truck Shipping Costs.
Steele said Werner, the nation’s third-largest truckload carrier, saw its overall rates grow about 2 percent from the first quarter to the second quarter after five straight quarters of decline. Spot rates soared 25 to 30 percent in the second quarter, however, and continued rising in July.
“We saw a flattening out in spot rates in August,” he said.
Truckload carriers will start negotiating contracts for 2011 later this year and industry executives say they expect tight capacity to push pricing upward.
Projections of a 4 percent increase in rates over the next year are “a fair representation” of the market, Steele said. “Clearly the rates are going to go up in the first quarter of 2011. It’s just the magnitude of the increase that’s going to be determined,” he said.
The tight capacity that helped push up spot pricing “paved the way for us to have discussions with our customers,” David Jackson, chief financial officer at truckload carrier Knight Transportation, told the same meeting. “We’ve seen a fair amount of discussion with customers that want to make sure they have capacity this holiday season.”
That capacity, he said, will come at a cost to shippers. “We’re working through the bottom 30 percent of our customer list and that bottom 30 percent is going to have to understand we’re just not going to be able to ensure that we can get them capacity in the holiday season when capacity tightens, as we think it will,” he said.