Carriers and transportation analysts alike believe the challenges facing the trucking industry as a whole are only going to grow in 2013, with freight volumes expected to stay flat and rates to decline or increase only moderately – even though capacity may continue to shrink do to the fallout from federal regulatory efforts.
For the first time since the first quarter of 2009, trucking company executives responding to theFourth Quarter 2012 Business Expectations Survey conducted by consulting company Transport Capital Partners (TCP) believe freight volumes will stay flat, with a larger share of carriers (45%) expecting business volumes to remain the same rather than increase in the year ahead.
TCP Partner Richard Mikes noted that carriers are split as to whether rates will remain the same (46%) or increase in the year ahead (44%), with larger carriers with revenues exceeding $25 million more optimistic than smaller carriers. Still, nearly 20% of smaller carriers actually expect rates to decrease in the next twelve months, he said, which shows a lack of confidence for the year ahead.
Furthermore, the poll found that only 21% of all carriers reported rate increases over the last three months – the lowest percentage since February 2010 – while 70% of all carriers reported that their rates remained the same for the last three months, which is the highest percentage since the question was initially asked in TCP’s survey back in May 2009.
“Their volume and rate outlook does not bode well for cash flows and profits in 2013 for an industry under costs and availability pressure for drivers,” Mikes stressed.
John Larkin, a senior transportation analyst with Wall Street firm Stifel Nicolaus, noted in the company’s fourth quarter earnings preview that most carriers are not adding capacity, except for those tied to specific dedicated fleet contracts, as supply and demand is now roughly in balance despite weak U.S. economic growth.
More troublesome for trucking is that more capacity is now being lost due to regulations promulgated by the Federal Motor Carrier Safety Administration (FMCSA).
In particular, Larkin cites the new hours-of-service (HOS) rule changes that go into effect in mid-2013 as the new restart rule represents a 17% reduction in theoretical work time per week, while rules dealing with speed limiters, revised drug testing procedures, medical certification process, and others coming down the regulatory pipeline could force many drivers out of the industry.
Furthermore, plenty of confusion remains throughout the industry regarding the FMCSA’s new Compliance Safety and Accountability (CSA) program, which is adding to compliance strain.
On top of that, many fleets seeking to use higher pay in order to keep them behind the wheel could find such efforts stymied by the inability to raise rates significantly, said Steven Dutro, another TCP partner.
“Driver pay increases will be constrained by stagnant rates [so] it will be a tough balancing act for carriers to keep drivers,” he explained.
Indeed, Stifel Nicolaus is projecting that general contract rates in the truckload segment may fall 1% or grow only as much as 2% year-over-year in the first half of 2013, with general dedicated rates staying flat or increasing just 2% year-over-year.
TCP’s Mikes added that, for the first time, half of the carriers polled by the firm report that they do not expect to be able to renegotiate any increases in even-more important “accessorial” fees, such as fuel surcharges and detention times.
“Continued high fuel costs, inadequate fuel surcharges, and some shippers not recognizing the impact of delays on schedules with constricted HOS rules will force an increase in distressed situations,” he said.