Capacity Tight, Demand Strong as Summer Looms, Experts Say

This story appears in the May 23 print edition of Transport Topics.

Freight capacity remains generally tight and demand strong ahead of the summer shipping season, according to several carrier executives and analysts.

“We’re very close to capacity, if not at capacity,” Steve Kirk, assistant vice president of sales at Bulkmatic Transport Co., Griffith, Ind., told Transport Topics on May 18, as food and plastics shipments surge. “Business has really picked up in the last four weeks. We are turning down loads for noncontract customers.”

Craig Stanley, vice president of sales for Tennessee Steel Haulers, Nashville, Tenn., said his company’s capacity is tight and there has been solid growth in machinery and pipe shipments.

“Demand has been strong,” said Geoff Muessig, executive vice president of Pitt Ohio, primarily a less-than-truckload carrier.

Current market indicators underscored those comments.

FTR Associates economist Noel Perry told TT on May 17 that the consulting firm’s utilization index for the second quarter stands at 98.6, meaning that nearly all available equipment is in use. FTR’s reading in the second quarter of 2010 was 92.2.

Load-board operator TransCore’s freight index, which measures equipment supply and freight demand, climbed 12% in April from a year earlier, remaining near record levels.

On the other hand, additional data from TransCore and a separate report from Longbow Research indicated that the early spring capacity crunch may be easing a bit.

TransCore said available capacity increased 14% in April from March, when capacity was the tightest in any month since the load board was created in 1996.

The weekly trucking barometer published by Longbow, which provides investment research, slipped for the fourth time in five weeks during the period of May 9-15. However, that latest reading remained higher than all but one week of 2010.

Experts said capacity shifts are driven by regional economic conditions, company strategy and supply of equipment and drivers.

“Freight volumes in the South and Midwest were negatively impacted by the extreme weather conditions the regions experienced during April,” said the report from TransCore, Portland, Ore.

Another dampening factor, literally, was widespread rain and cold that delayed spring produce harvests and shipments, TransCore noted.

By early last week , demand had rebounded in the South and Midwest, with flatbed freight stronger than dry van or refrigerated markets, TransCore said.

Pitt Ohio’s Muessig linked capacity and strategy.

Capacity is tight if shippers seek “premium, high-performance” carriers that are financially viable and safety-focused, he said, while noting that “there is a piece of the market that is very price-focused where there is plenty of capacity.”

“From a supply [of equipment] standpoint, we are still in a mode where we are recovering from the Great Recession,” Muessig said, adding that the Pittsburgh-based company is buying 125 tractors this year to update its fleet.

“The key focus is on recapitalization,” he said. “Just about every company deferred investment during the recession.”

As fleets age, discerning customers want to know whether LTL fleets are making investments to maintain service levels, he said.

Similarly, Bulkmatic is between 40 and 60 tractors this year, after a net increase of 50 power units last year, said Kirk.

He also said hiring challenges are mounting as fleets looking for drivers have to cope with increased federal safety scrutiny and hours-of-service changes.

“You have to make sure you’re hiring at a very high level,” said Kirk, adding that Bulkmatic hires one driver for every 100 who contact them. “You can’t afford to hire a dud.”

Perry believes capacity constraints are driver-driven.

“There is plenty of equipment,” he said. “People haven’t hired enough people to keep up with the growth of freight volumes.”

The tight driver supply is making it more difficult to find people for irregular route and long-haul truckload runs, Perry said.

Capacity will be further constrained as more fleets use electronic on-board recorders that limit driver hours and the Compliance, Safety, Accountability program effectively disqualifies others, he added.

Stanley business levels in April were among the highest ever despite driver and weather-related factors.

“There is a major [capacity] crunch,” Stanley said. “We see this as one of the hardest times for recruiting. There are not as many trucks on the road.”

Demand is surging, Stanley said, in the aftermath of the severe 2011 winter made it impossible for many businesses’ building projects to proceed.

Bulkmatic likely will have to turn down non-contract loads later this year, said Kirk, adding that Bulkmatic is working with customers to assess contractual requirements and assure adequate capacity.

Perry said FTR’s utilization index could reach record levels this summer.

He believes there is a “strong likelihood” capacity will significantly tighten this summer as the U.S. economic growth pace spikes.

A spike, he said, would strain freight markets that have so far grown during the recovery at an even pace and allowed carriers and shippers to adjust gradually to growing demand.