A new Trucking Trends survey inaugurated in 2011 revealed that many carriers believe there’s little chance to attain rate increases in 2012 and that making a profit is only going to get tougher.
However, in a surprise twist, many carriers feel the regulatory hurdles posed by hours-of-service (HOS) reform efforts and the Federal Motor Carrier Safety Administration’s (FMCSA) new Compliance, Safety, Accountability (CSA) program introduced in 2010 won’t be nearly as challenging as many initially feared.
The survey – co-produced by Wall Street investment firm Jefferies & Co. and Fleet Owner magazine – polled carriers in two stages last year; the first in mid-2011 to create a baseline, with the second at year-end to evaluate changes in industry expectations. The typical respondent was a privately-held carrier with 250 or fewer trucks and an average length of haul of less than 500 mi., Jefferies noted.
(To see the results of the entire survey, click here)
In mid-2011, the majority of carriers surveyed by Jefferies and Fleet Owner expected to sign new shipper contracts with rate increases between 2 and 5%. However, by year’s end, a striking 70% indicated that they expected rate increases to be only 2% or less, said Jefferies' Transportation Analyst Peter Nesvold.
“Our sense is that the industry essentially talked down its own expectations due to the onslaught of economic worries following the S&P [Stand & Poor’s] downgrade of U.S. sovereign debt [in August], which was the most significant economic event between the mid-year and year-end surveys,” he explained. “Fortunately, the percentage of shippers asking for a cap on fuel surcharges also moderated.”
Pressure on profits is also expected to keep increasing in 2012 as well, according to Jefferies’ findings, even though pressure on several key costs metrics, such as driver pay, abated during the second half of 2011.
While 77% of respondents at mid-year expected to raise driver pay, this dipped to less than half later in the year, Nesvold said, and pay increases currently appear to be well below 2% heading into 2012.
“Even still, other rising costs – such as tires and batteries – are problematic,” he stressed. “Given the tempered rate environment described above, more than 80% of respondents said that margins would be flat to down in 2012 if rate increases don’t exceed 2%.”
One bright spot — or “glass half full” optimism, if you will — is that the expected efficiency “headwinds” from HOS reform and the CSA program wouldn’t blow nearly as strongly as many carriers feared by the end of 2011.
“Regarding the still unsettled HOS regulations, for instance, our mid-year survey results revealed that a plurality of respondents (42%) believed that a revised HOS rule could be a drag of at least 5% on productivity,” Nesvold noted. “However, these expectations dropped significantly, with only 28% of our year-end survey respondents citing an expected productivity hit of this magnitude. Surprisingly, 9% of respondents at year-end are anticipating no productivity impact at all.”
While it’s unclear exactly why sentiment has improved modestly regarding the pending HOS regulations, Nesvold said one explanation might be that the year-end survey contained a higher percentage of small carriers among respondents.
“In the past, some industry participants have suggested that compliance rates on regulatory mandates such as HOS are lower among some smaller carriers, whose drivers are more likely to use paper-based logbooks,” he explained. “We do not believe that a difference in length of haul between respondents at mid-year versus year-end impacted the results, as this measure was essentially unchanged in the two surveys.”
Similarly, carrier perspective on the CSA program implemented in late 2010 is also shifting.
“At this time a year ago, our industry channel checks suggested that some carriers were only able to qualify less than 10% of driver applicants, in part due to the new CSA rules,” Nesvold noted. “But at mid-year and year-end, carrier attitudes toward CSA improved, as the regulations … are starting to help quality carriers to differentiate themselves from the rest of the pack.”