According to the calendar, spring began March 20. In terms of truck capacity, however, spring got its start in December or January, according to Richard Mikes.
“Capacity is one season out of phase,” said Mikes, a partner at financial advisory firm Transport Capital Partners. “This year, the winter season was the typical spring season in terms of truck capacity,” he said. That means capacity is even tighter than usual as the actual spring retail season unfolds, and truck rates are likely to rise higher than shippers and carriers anticipated a few months ago, he said.
The winter storms that swept across the U.S. from late November through early March disrupted supply chains and cost the U.S. economy billions of dollars — as much as $3 billion in January alone, by some estimates. Those storms led to equipment shortages — trailers, trucks and chassis — and significantly higher spot market truck rates that have yet to subside as the weather warms up. Shippers shouldn’t expect a drop in truck pricing or a “normal” spring, said Mikes, whose company published its first-quarter truckload carrier survey this week.
Signs of tightness are already apparent on the Mexican border, according to logistics firm Transplace, where produce shippers are looking for more trucks to meet an unusually early spike in U.S. demand for Mexican vegetables and fruits.
“I don’t think there’s any spare capacity out there, and if you look at spot market rates you can get a pretty good predictor of where the contract market is going,” Mikes said. The DAT Solutions national average spot market rate for dry van tractor-trailers climbed 10 cents from March 1 through March 22, rising to $2.09 a mile. That rate began the year flat with December and began to rise in February.
In the latest Transport Capital Partners survey, the number of truckload carriers expecting rates to increase over the next 12 months shot up 62 percent from the fourth quarter, with four out of five carriers anticipating rate hikes this year. More than 40 percent said their rates had increased over the past three months.
Eighty percent of the large carriers ($25 million or more in annual revenue) surveyed said they expect freight volume to rise over the next twelve months, while a slightly smaller percentage of small trucking firms saw more freight coming.
Year-over-year, the number of carriers expecting stronger business rose 48 percent.
“We’ve got a short-run economic picture that is very favorable for the trucking industry,” Mikes said. “By short run, I mean over the next two to three quarters.” Mikes expects truckload rates to rise by mid-single-digit percentages over that period — more than would have been expected a few months ago, he said.
How high truck rates rise depends both on the pace of the U.S. economy and on how quickly carriers are able to add capacity to meet rising demand. The slow growth of the U.S. economy has dampened rate hikes in recent years. Faster economic expansion would spur rates, but the course of the economy is still unclear.
In a recent investor note, Stifel managing director John G. Larkin said there is little reason to expect gross domestic product to rise faster than 2 to 2.5 percent. He cited a host of factors, ranging from stagnant consumer incomes to higher health care costs and modest capital investment and hiring plans by businesses. “It will be interesting to see if the (truck) rates hold up once the snow and ice melt and once the spring and summer merchandise stocking period is behind us,” he said.
But he also believes long-term trends are in favor of higher trucking rates and transportation costs. “While there may be tightness in the supply-demand dynamic this year, and in 2015 and in 2016, we ‘ain’t seen nothing yet,’” Larkin said.
Mikes said shippers may be a year or two away from “the mother of all rate hikes,” if current market trends continue. That is, if truck capacity continues to remain flat or declines and the economy gains some real strength, increasing freight traffic.
“There are two valves working on the supply side” to cut off capacity and push up rates, Mikes said. “One, there aren’t enough physical trucks out there.”
The number of trucks available to shippers dropped sharply during the recession and has continued to drop across five years of modest economic recovery. The JOC Truckload Capacity Index, which measures capacity levels at a group of large publicly owned carriers, dropped to 79.8 in the fourth quarter of 2013, indicating the capacity those trucking firms can deploy is down 20 percent from 2006.
The second “valve,” Mikes said, is a shortage of truck drivers — or those who want to work truck driver hours for current truck driver pay. “We’ve got to increase driver wages to be competitive” with construction and energy industry wages, he said. Jobs in oil and natural gas fields, in particular, “are taking away drivers.”