Trucking executives have reason to be optimistic in 2013. Recent indicators in housing and industrial production lend credit to forecasts of higher freight volumes, tighter capacity and pricing power for truckload operators, especially in the second half of the year.
“2013 could be an inflection point,” said Brad Delco, transportation analyst at investment research firm Stephens. “People are relieved they’re seeing fairly stable trends at this point. We’re seeing folks leaning more toward the optimistic side, though the scars of what we’ve been through over the past couple years are still healing.”
But relentless cost pressures are likely to reshape truckload carriage, making long-haul carriers more diversified and more regional. Lessons learned from the recession will keep truckers focused on bottom-line management rather than top-line growth.
“We all have to continue to adapt and change to the environment, and that’s creating some significant challenges in this historically entrepreneurial-driven business,” said John White, president of truckload carrier U.S. Xpress. “In this asset-intensive industry, we need to do a better job of developing the asset-light side of our business. That’s going to be a key component of our success going forward, and we’ve got aggressive plans to grow in brokerage.”
Access to assets will be key for shippers and for carriers that want their business in 2013, particularly if tighter hours-of-service rules for truck drivers significantly cut into the amount of time truckers may drive and the number of turns they can accomplish in a week.
“The potential impact on carriers and on shippers is huge,” said Jack Holmes, president of UPS Freight. “I’m not sure shippers completely understand that yet.” Less-than-truckload and truckload networks are designed to give carriers “maximum reach,” Holmes said. If changes to the 34-hour restart provision mean drivers lose hours on the road, those networks could come up short. More trucks would be needed, as well as some network re-engineering by carriers and shippers.
Just how tight capacity gets depends on how quickly freight demand rises and how regulatory changes affect the driver pool. Currently, truckload capacity is “pretty close” to a supply-demand equilibrium, said White, whose company is the fifth-largest truckload carrier in the U.S. and the second-largest privately owned truckload carrier, according to revenue data from SJ Consulting Group.
“We’re fighting (for freight) every day, but there are not significant assets sitting idle,” White said. It won’t take much growth for capacity to be constrained — especially for less well capitalized companies that are having trouble renewing and investing in their businesses” because of higher expenses, particularly equipment costs. “The price of trucks is up so dramatically that many carriers that are going to trade aren’t necessarily able to trade one truck for one truck.”
A strong start for the spot truckload freight market bodes well for truck volumes in 2013, as the housing market and industrial freight heat up, according to load-matching service DAT. “We are seeing some pretty significant year-over-year growth levels in freight volumes,” said David Schrader, DAT’s senior vice president of operations. Spot truck market freight volumes were up 30 percent in early January, he said, following the strongest December and November in the history of DAT’s North American Freight Index. That could mean higher prices and tight capacity for shippers as the domestic consumer economy picks up speed toward the second quarter, merging with a stronger industrial shipping economy.
“What I’m reading is confidence is back,” Schrader said. “The housing market is no longer a headwind; it’s actually a tailwind,” driving increases in truckload freight in several regions of the country.
In December, housing starts were up 37 percent year-over-year, according to the Commerce Department. An estimated 780,000 housing units were started in 2012, up 28 percent from 2011. That means more lumber and other building supplies are on the road. “There’s a huge movement of lumber moving from the Pacific Northwest,” said Mark Montague, DAT’s industry pricing analyst. Some of that lumber is heading to the Southeast, where “construction season is already under way, and we’re seeing some seasonal tightness in flatbed capacity.”
He also sees stronger demand for industrial freight — from car frames to steel — tightening truckload capacity in some areas of the country. Manufacturing output increased 0.8 percent in December, after rising 1.3 percent in November, largely driven by sales of cars and automotive parts.
“We’ve got a real dichotomy going” between the industrial and consumer freight markets in early 2013, Montague said, as well as regions of the country with significantly different industrial bases. “I think some of the brown-box shippers are experiencing slack capacity” in some areas, he said, which isn’t unusual in the post-holiday season. Industrial demand is filling a freight gap for truckers.
Demand is still “not robust,” said White, and Holmes, on the LTL side, has a “tempered outlook” for 2013. But both see tight truckload capacity eventually reshaping supply chains and their businesses.
U.S. Xpress, originally a team-truck, long-haul carrier, today is much more diversified, with dedicated, brokerage, intermodal and regional operations — a trend White expects to gain speed in 2013.
“We want to grow our dedicated footprint — we had good success with dedicated in 2012 and we’ll have more in 2013. We’ll continue to expand and grow truck capacity but at a more controlled pace,” he said. The growth of dedicated carriage is driving a long-term reduction in truckload length of haul. “Years ago, our average length of haul was over 1,200 miles, but now it’s in the 800-mile range,” he said. “For our solo drivers, it’s in the 500-mile range. And there’s an awful lot of short-haul regional business that’s under 500 miles.”
UPS Freight, the fourth-largest LTL carrier, sees greater opportunity for intermodal and intramodal shift as truckload capacity grows scarcer. “We’ve challenged ourselves to provide more truckload options for the shipping community,” Holmes said. Recently, UPS has seen more retailers consolidate shipments that once moved as parcels into truckloads, and UPS Freight has responded with truckload brokerage and intermodal offerings, he said.
If truckload capacity shrinks, Holmes expects some truckload freight to shift to LTL trailers, the opposite of what happened in the recession. “Truckload carriers won’t be able to haul all the truckload freight,” he said, “and some of it will come into LTL networks and the lack of LTL capacity will show up pretty quick.”