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Capacity Squeeze May Spark Supply Chain Changes
Sourced by JOC
One way to measure trucking demand is by looking not at how much freight a trucking company can haul, but at how much it turns away. In the first quarter, U.S. Xpress Enterprises, North America’s sixth-largest truckload carrier, turned down as many as 1,200 loads a day tendered by shippers via electronic data interchange. That’s four times the number of shipments the carrier rejected in the same period last year, Chief Marketing Officer John White said. In late April, the Chattanooga, Tenn.-based carrier is still turning down 600 loads a day. “We’re turning down more freight on a daily basis than we were in January, and we’re up twofold in the amount we turn down compared to last year,” White said. “I’m the most
popular guy in the industry now. Everybody wants our capacity.”
The rough equilibrium between trucking demand and supply enjoyed by shippers during the last two years is getting rougher by the day. The cost of hiring a truck is rising, and not just because of the recent severe winter or faster economic growth. Truck pricing is climbing steadily simply because there are fewer trucks.
The unusually harsh winter did for trucking operators what a sputtering economic recovery could not do in five years: It significantly increased their pricing power. As four months of storms and frigid temperatures disrupted commerce, signs of systemic weaknesses in
U.S. freight markets emerged from ports to the prairies.
Those weaknesses include truck capacity levels at least 20 percent below a pre-recession peak reached in 2006. Spot market truckload rates soared in the first quarter, and contract truckload rates are still climbing.
Some shippers are being hit by double-digit increases, according to BB&T Capital Markets. In a March 26 investor note, BB&T highlighted a carrier that proposed hiking rates 11 percent on selected lanes, but got a 13 percent increase for three extra trucks a day.
“In every lane, in every market, holy smokes, the rates have jumped,” said Kerry Byrne, executive vice president of Total Quality Logistics, a $1.6 billion third-party logistics company handling 18,000 loads a week for shippers. “For our customers, there’s disbelief,
because it happened so fast. The weather blew it all up.”
“Capacity is one season out of phase,” said Richard 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.”
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 anticipated a few months ago, he said.
Winter’s end brought shippers some pricing relief, but not much and probably not for long. The DAT Solutions national average spot rate for dry van tractor-trailers dropped from its first quarter peak of $2.10 to $2.06 per mile by April 19, said DAT pricing analyst Mark Montague, who calls April “a moderating month.” Spot market dry van rates, however, “are still 21.7 percent higher than a year ago.” At that time, the average rate was $1.79, “and $1.80 is around break even,” he said.
“We’re getting a little breather here,” Montague said. “Enjoy it, but hang onto your seats, because it could get pretty intense by the end of May and into June.”
