Will truckload rates rise quickly in 2014 as truck capacity tightens? Not surprisingly, shippers and trucking companies have different opinions.
BB&T Capital Markets sees a “looming tug of war” between motor carriers trying to raise rates to cover higher costs and shippers trying to keep cost increases to a minimum.
The split between supplier and buyer was evident at BB&T’s 29th Transportation and Logistics Conference, according to BB&T analyst Thomas S. Albrecht. “While most shippers eventually believe transportation will become somewhat more inflationary, the idea that 2014 is the beginning of the next great capacity crunch was not universally accepted,” Albrecht said in a Feb. 18 note to investors.
“The (truckload) carrier refrain has been that rates will rise 2 percent to 3 percent this year,” Albrecht said. “When we asked shippers how their bosses would respond if told that rates are going up 2 percent to 3 percent, all replied that level would not be well received.” A 2 to 3 percent range is the base of many carriers’ predictions.
Shippers, Albrecht said, would pull every lever possible to mitigate steep truckload rate increases if they do come, turning to dedicated fleets and converting more freight to intermodal rail, using brokers and logistics companies and working with core carriers and other shippers to find ways to keep a lid on transportation costs.
Truck supply and freight demand are unclear
After the severe winter weather that disrupted supply chains in December and January and early February, it’s hard to tell where truck supply and freight demand really stand, Albrecht said in his note. Although freight demand has been stronger than usual, the severe weather created temporary equipment shortages.
It’s unclear whether the storms and frigid temperatures, blamed for $3 billion in economic damage, revealed structural — as opposed to temporary — weaknesses in supply chains that could prove damaging if freight demand does rise quickly.
“These storms have been a significant hit to supply chains,” Ben Cubitt, senior vice president of consulting and engineering at Transplace, told the JOC in an interview. “The response has required a tremendous amount of scrambling.”
Transportation networks thrown out of balance by storms could be hit again as they recover if freight demand comes roaring back in March. BB&T’s Albrecht expects “robust” freight demand in March and April. “Weather and catch-up freight could make it be May before the real state of supply and demand is known,” he told investors.
Shippers are having more difficulty finding trucks, the BB&T analyst said, but in January that was most likely due to weather-related equipment shortages. However, shippers and carriers told BB&T a capacity crunch is more likely in 2015 than 2014.
Shippers must unload, load faster
To prepare for and deflect rising rates, shippers need to change the way they work with carriers and receive truck drivers at their docks. One issue raised at the BB&T conference was the need to "live load" and unload trucks more efficiently.
Faster loading and unloading "would create a 'win-win' for shippers and carriers, with carriers benefitting from increased utilization and happier drivers being paid for miles as opposed to detention," said Albrecht. More efficient loading and unloading of trailers could also lessen the likelihood shippers may face federal regulations and penalties for excessive driver detention time.
One means of improving load efficiency advocated by many shippers is greater use of preloaded drop-and-hook trailers. That's one of the first steps shippers should take to make their freight more attractive to carriers, Andy Moses, senior vice president of global products at Penske Logistics, told the JOC.
“Some large shippers we’ve talked to are doing things aggressively along those lines,” Moses said earlier this month.