Truckload contract rates will increase by at least 4 to 6 percent this year and could easily go higher as strong demand collides with still tight supply to create a sellers market for trucking services, a leading transportation analyst said Saturday.
Donald Broughton, managing director of Avondale Partners LLC, told the annual conference of the Transportation Intermediaries Association (TIA) that truck tonnage is growing by 8 percent while total loads are expanding by 5 percent, both indicators of solid demand. At the same time, the nation's truckload fleet is older than at any point in history, with an average age of more than six years, Broughton said. In addition, virtually no carrier is adding trucks to current fleet sizes, he said.
Carriers have also faced a series of regulations such as new rules governing a driver's hours of service, which has effectively reduced carrier productivity by between 3 to 5 percent by cutting the number of weekly hours a driver can stay on the road. In addition, by the second half of 2016, all fleets will be required to place electronic on-board recorders (EOBRs) in their cabs to more accurately monitor a vehicle's location and activity. Although most large carriers have already made the sizable investments in the equipment, technology, and process changes needed to move from paper logs to electronic logbooks, many small to mid-size carriers have not.
Broughton, who publishes a quarterly index of trucking company failures, said 10,650 for-hire vehicles exited the market in the first quarter of 2014. Although that represents a little more than 5 percent of the 180,000 large commercial vehicles licensed to operate in interstate transportation, Broughton noted that private fleets make up about half of that total figure. As a result, the number of first-quarter vehicle departures is more significant than it may initially seem, he said.
Since the start of 2014, Broughton has been revising upward his forecast for contract price increases. He began the year with a 2- to 3-percent increase projection, within 60 days revised it to 3 percent, and recently hiked it again to its current level. Depending on demand flow throughout the year, the increase "could be higher" than current levels, he said.
Broughton is bullish on asset-based providers, joining a growing chorus of analysts and executives who believe that those holding the capacity will have enormous leverage in what may become a multiyear market for tight space. He is also bullish on the large carriers, saying many have already made the needed investments and adjustments to comply with the government regulations and are now on the positive side of the cost-inflation curve.
Gartner, Inc.
