Tight capacity and growing demand will push truck rates up

Tight capacity and growing demand will push truck rates up

MONTEREY, California — Tight trukload capacity and an improving economy will push freight rates higher this year, according to Ben Hartford, senior research analyst at Robert W. Baird Co.

Hartford told a Crane Worldwide Logistics management seminar Thursday that core trucking prices are projected to increase 5 percent this year, with consumer demand being the main driver of growth. Consumers account for 68 percent of gross domestic product. “All eyes are on the consumer,” he said.

On the supply side, an aging driver force and the inability of the industry to attract sufficient new drivers will serve to reduce capacity. Truckload capacity is the tightest it has been in a decade, Hartford said.

Other factors contributing to economic growth include low inflation, low interest rates, growing consumer confidence and low fuel prices. Although the decline in the price of oil since last fall has created some “modest headwinds,” especially in oil-producing regions of the country, the impact on consumers has been “unambiguously good,” he said.

The economy in the mid-term, however, will experience a structural change as baby boomers retire and consume less. They are being replaced by a smaller population of millennials. As a result, economic growth in the coming decades will slow down.  

Attention in the longer term will shift to the international economy as the middle classes in developing countries increase dramatically. This will be especially true of China. An expanding middle class is good for the transportation and logistics industries, he said. While global population will increase 33 percent in the coming decades, the world’s middle class population will double.

In order to tap into these growing markets, U.S. producers must improve their productivity. The long-term headwinds from lagging productivity are real, he said.

Although the trucking industry must continue to adjust to a more demanding regulatory environment that results in reduced capacity, the coming year will see some easing of regulatory pressures compared to recent years.

Naysayers who feel the economic recovery of the past five years is about ready to run its course are being too pessimistic. Hartford said that although the recovery is judged as being “old” by historical standards, “there’s still growth ahead.” The trigger points for recession historically have been rising fuel prices, rising interest rates and falling consumer confidence, but none of those forces are at work today, he said.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com and follow him on Twitter: @billmongelluzzo