Truckers’ Long Haul

Truckers’ Long Haul

Truckers should be green with envy at the pricing power their oceangoing counterparts are beginning to wield. Rates in the truckload market are firming but still aren’t far from the bottom they hit last year.

Truckload rates fell 5 percent year-over-year on average in 2009, and were down a cumulative 8 percent from 2006, according to Baird Equity Research. Less-than-truckload rates slid more steeply, falling about 10 percent on average last year and 13 percent over the past three years. With deep discounts, actual pricing slid even more.

Efforts to raise those prices are being frustrated by a number of factors.

First, demand remains low, and shippers are only slowly rebuilding inventories. “A lot of people (in trucking) expected to see an increase in demand due to an inventory buildup, but because retailers are managing their inventory much more closely, we haven’t seen that yet,” said Jim Butts, senior vice president of transportation at C.H. Robinson, a third-party transportation and logistics provider that works with more than 50,000 carriers and 32,000 shipper customers.

And, there are still too many tractors pulling empty trailers. Excess capacity has a stranglehold on companies that want to raise rates, giving shippers enormous leverage as they begin first-quarter contract bidding with carrier partners. Estimates of overcapacity in the LTL segment range from 15 to 30 percent, according to various analysts and consultants. That means even if YRC Worldwide, the largest LTL carrier, were to fold, excess capacity still would be available to tamp down rates.

Truck pricing will rise incrementally, industry executives, consultants and analysts say, as carriers gain control over capacity, and as more marginal companies in the truckload and LTL arenas are forced into bankruptcy in the first half of the year.

Capacity may come into balance more quickly in the truckload market, where spot freight volumes shot up 11 percent month-to-month in December, a month that usually sees a decline in spot freight, according to logistics technology and services firm TransCore.

That indicates truckload capacity may have been ratcheted back enough at major carriers to push some late-shipping holiday freight into the spot market for individual loads as retailers topped off their store shelves and inventories. It may reflect increased expedited demand, Baird Equity Research said. TransCore pointed out that spot market rates are lower than truckload rates in general, though the gap is closing.

Early in the first quarter, “We are seeing rates come off the floor,” said Mike Regan, chairman and CEO of TranzAct Technologies, an Elmhurst, Ill.-based freight and transportation management firm.

Regan said some of the carriers he works with are turning away from deep discounts off base rates offered in 2009 to focus on yield management and restoring profitability. “One walked away from a $15 million LTL contract,” he said. Previously, that carrier had offered discounts “without even being asked for them.”

Two leading LTL carriers, Old Dominion Freight Line and FedEx Freight, kicked off 2010 with general rate increases. ODFL raised its base rates 4.4 percent on Jan. 18, while FedEx Freight will raise its base rates 5.9 percent on Feb. 1. Those rates don’t affect shipments moved under contract — the majority of LTL freight — and shippers can still press for discounts, but the rate hikes signal a general retreat from the trucking price wars of 2009, when LTL carriers offered short-term discounts as deep as 90 percent to gain greater share of a dwindling market.

How far and how fast rates rise depend on how quickly freight returns. Like Butts, Regan said he isn’t seeing “a panicked rebuilding” of inventories that would fill existing capacity. But carriers will ask for increases even if demand remains tepid, Regan suggests.

“If freight volume doesn’t increase soon,” he said, “you’re going to have to see increased rates or some carriers are going to fail.”

Contact William B. Cassidy at wcassidy@joc.com.