Shippers: Don't get complacent about comparitively weak truck pricing.
Although rate hikes are likely to stay in the low to mid-single-digit percentage range over the next year or two, double-digit price increases could slam shippers if the economy shifts into higher gear, a Wall Street analyst warns.
And in the long run, he said, the direction truck pricing will take is up. Capacity that has leached out of trucking networks since the recession isn't making a quick comeback.
Truck “rates could easily go up by double digits again sometime in the next two years, but the timing is hard to pinpoint,” David Ross, managing director of global transportation for investment research firm Stifel Nicolaus, told carriers, logistics companies and shippers at the SMC3 Connections 2013 conference June 21.
That pinpointing is hard because the earthbound economic recovery, now in its fourth year, stubbornly refuses to gain much altitude. U.S. gross domestic product rose 2.4 percent in the first quarter, according to the latest Commerce Department estimate, after climbing only 0.4 percent in the 2012 fourth quarter.
The promise of higher freight demand many motor carriers saw in the hectic spring of 2010, when the economic recovery was in its early stages, still floats on a far horizon, like a Maersk Triple-E container ship.
With such slow economic growth, “It’s been hard for carriers to push through higher rates,” Ross said, especially as the pace of recovery slowed in 2012.
Despite rising equipment costs and the much-publicized driver shortage, “[t]ruckload rates aren’t doing much more than inflation,” he said. Less-than-truckload carriers are doing a bit better, Ross said, increasing rates 3 to 4 percent.
Ross forecast trucking rates would rise anywhere between 0.5 and 6.5 percent over the next two years, depending on how quickly the economy expands.
More contraction could send rates into “negative” territory, he said. But a surge in freight activity could lead to a capacity crunch that would send rates soaring, he warned.
LTL demand already exceeds "active capacity," measured by active terminal doors, and truckload capacity and demand are close to equilibrium.
Shippers aren’t planning on big price hikes. Companies surveyed by Wolfe Research in the second quarter expected truckload and LTL rates to rise 1.6 percent in 2013 — far lower than carriers say is needed to recover capital costs and reinvest in their businesses.
The largest LTL carriers signaled their intent to raise pricing through general rate increases of 4.5 to 5.9 percent on average in June.
At this point, a large-scale capacity crunch looks very unlikely. Expectations for a stronger second half were tamped down at the conference.
Economist Donald Ratajczak forecast second quarter GDP growth of about 1.8 percent, with GDP growth rising above 3 percent by the fourth quarter. The private sector economy “is doing reasonably well,” Ratajczak said, despite weak consumer purchasing power.
Consumers, like trucking companies, are replacing durable assets, but not buying additional ones.
“The trucking industry is improving faster than the economy, but from a weaker base,” Ratajczak said. “They’re still a long way from where they need to be.”