ATLANTA — Move over railroads. The trucking industry may be rolling toward a "pricing renaissance" of its own, as rising operating costs and tight capacity push truck rates higher.
Although annualized rate increases slowed in 2012, steady economic growth and industrial production, especially in the second half of 2013, could speed their pace.
"We're on the forefront of improved pricing power across all modes," Benjamin Hartford, senior equity research analyst at R.W. Baird & Co., said at the SMC³ winter conference.
[Watch Bill Cassidy interview Hartford in this JOC video: "Defining a Trucking Renaissance"]
"We saw (improved pricing power) with rail 10 years ago, and we'll see it in more modes over the next three to five years," Hartford told the Jump Start conference in Atlanta.
"Fundamentally, a pricing renaissance on the trucking side would look different," Hartford said, thanks to the highly fragmented nature of the trucking industry.
"In concept it would be similar in that it could bestow a multiyear period of pricing power to the carriers. The order of magnitude would be different from the rail renaissance.”
A trucking renaissance "would be a period longer than two years in which pricing would rise at or above the rate of inflation," a situation that would be "unique," he said.
R.W. Baird forecasts truckload rates excluding fuel surcharges will rise 1 to 3 percent in 2013, while less-than-truckload pricing will increase 2 to 4 percent from 2012.
The investment research firm predicts rail pricing will also rise 2 to 4 percent this year.
"Cost pressures in this cycle will continue to push prices higher, as carriers need to extract more from rates to continue to operate," the transportation analyst said.
That would challenge shippers trying to restrain their own operating costs and encourage greater supply chain collaboration to reduce costs across the board.
Hartford sees important differences between the current economic cycle and the last. Inventories are leaner, manufacturing is stronger and housing starts are increasing.
The trucking market is maturing, he said, creating an "inflection point" for carriers. "For LTL, end-market growth is slowing, and pricing discipline is here to stay."
Logistics growth, overall, is slowing, he said. The good news for transport operators, Hartford said, "is that pricing discipline has improved" and capacity remains tight.
"It's normal for an industry to mature," Hartford said. "When you look at the definition of maturation, it looks like what we see happening across transportation."
LTL rates will likely climb faster than truckload pricing in the next couple of years as LTL trucking companies have farther to go to recover their pre-recession margins.
"LTL margins are still 200 to 300 basis points below where they were a cycle ago," in 2006, he said. "Public truckload carrier margins are back to peak levels."
A true renaissance in trucking would pair pricing discipline with sustained profitability — the kind long enjoyed by Old Dominion Freight Line, for example.
In an interview, Hartford said he believes improved freight demand coupled with firm pricing could help many truckload and LTL carriers get there in 2013 and 2014.
Post-recession, carriers “realize that growth for growth's sake is counterproductive,” he said. “They are focused on managing for profitability and improving return on capital.”