Credit rating firm Fitch Ratings believes that trucking will see healthy but more modest growth in 2006 than it experienced this year. The firm said profit margins will likely increase as capacity continues to tighten somewhat, bringing even stronger growth in revenue than volume.
The U.S. economy (GDP) will grow 2.8% in 2006, compared with the full-year forecast for 2005 of 3.6% and actual 4.2% growth in 2004, Fitch said. In other words, the economy has been slowing, and trucking is set to do the same.
“As we sit in the here and now, in the fourth quarter, we’ve seen good, consistent business,” Todd Jadin, senior vp- operations for truckload carrier Schneider National told FleetOwner. “Anytime when you’re in a situation where demand exceeds capacity, you’re in a good position.”
In fact, in late November the Commerce Dept. revised its third-quarter GDP forecast to a seasonally adjusted annual rate of 4.2%, signaling a strong fourth quarter and some momentum going into 2006.
“The real concern is will this carry over to the first quarter,” Schneider’s Jadin said. “The fourth quarter is always the busiest and the first quarter is historically the slowest. It’s hard to predict if this near-term optimism will continue.” Examples of third-quarter slowing in the freight hauling sector include drops in rail carload and long-haul LTL, Fitch noted. The credit rating firm expects raw material shipments and factory volumes to flatten, as well as that of automotive-related commodities.
However, there could be some regional strength in the automotive sector in the Southeast where foreign transplant factories are located, Fitch said. Additionally, construction-related commodities will accelerate in the Gulf Coast as rebuilding efforts following Hurricanes Katrina and Rita begin.
Intermodal shipments will continue to be strong, thanks to accelerating imports from China. Regional short-haul demand in the LTL sector is also strong as shippers look to truckers for just-in-time deliveries, Fitch said.
Shippers are expected to ramp up pricing pressure on haulers in 2006. Although pricing will remain strong, it will begin to moderate along with volumes. Shipping customers are paying more attention to the effect fuel surcharges are having on their overall shipping costs and will likely more actively negotiate the surcharge along with the base rate, said Fitch.
But tightening capacity will aggravate the driver shortage issue, Fitch said, as long-haul truckload carriers continue to offer higher wages to draw and retain drivers. The new hours-of-service rule may also increase labor costs.
Schneider’s Jadin agrees that the driver shortage will be a bigger issue in 2006.
“Longer-term the driver situation talked about for a number of years becomes of much greater concern,” Jadin said. “That’s the looming issue. If the economy continues to perk along, that exasperates the driver availability issue.”