Freight Rates to Rise Sharply After Recovery, TL Execs Say
By Rip Watson, Senior Reporter
This story appears in the May 26 print edition of Transport Topics.
NEW YORK — Shippers can expect hefty rate increases from truckload carriers, possibly as early as next quarter, because shrinking capacity is bringing supply more in line with demand, said carrier executives and industry experts.
Top executives from Swift Transportation, U.S. Xpress Enterprises, CRST International and Covenant Transportation Group each delivered that message last week at the Wolfe Research Transportation Conference in New York.
Increases will range upward from 3%, excluding fuel surcharges, and possibly reaching 10%.
“When the pricing power comes back to us, and it will someday, I see some large rate increases coming,” said CRST Chief Executive Officer John Smith. “To get us healthy again, we are looking at 10%.”
That kind of jump would far exceed recent and historic increases. Rates per loaded-mile rose 0.4% in the first quarter to $1.586 from the year-earlier period at publicly traded companies, based on a Transport Topics review. Wolfe Research said in a report that truckload rates have risen at an average annual pace of 2% since 2000.
These new comments from carrier executives provide a specific time frame for increases that was missing when leaders of the publicly traded companies announced sharp earnings declines last month.
Smith predicted the highest potential increase although he was the least optimistic about when it would occur. For the dry van business, he said he expects no pricing improvement until the first or second quarter of 2009.
Jerry Moyes, chief executive officer of Swift, and Covenant CEO David Parker said they expected increases of about 3% to start in the third and fourth quarter. Max Fuller, co-chairman of U.S. Xpress, agreed on the timing, but measured in the increase as 10 cents a mile, without giving a percentage.
“Truckload rates should begin to rise in six months,” said Satish Jindel, president of SJ Consulting. “Supply is still ahead of demand, but the gap has been narrowed. At the same time, truckload carriers have begun to show some pricing discipline in the aftermath of the problematic situation created by the pre-buy of 2007 engines.”
Carriers increased their fleet size in 2006 by buying trucks with engines that did not have to meet stricter federal emission standards that took effect in 2007.
In addition to being above average, increases in the 3% range are far more than shippers’ current expectations, based on a customer survey by Wolfe. Shippers envision a truckload rate hike of 0.6% this year. The biggest rate increase gained by carriers was 4.1%, in the third quarter of 2005, according to Wolfe.
“We all feel like it [rate increase] is coming,” said Ed Wolfe, who founded his research firm after leaving Bear, Stearns & Co. earlier this year. “We are very hopeful that people are going to go away from the market and we will get pricing improvement.”
The closing of Jevic Transportation last week was the latest sign of a reduction in capacity.(Click here for related story.)
Jindel said small “mom and pop” truckers who have been hit by higher fuel and insurance costs could exit the market even faster than the pace in the first quarter. A total of 935 carriers declared bankruptcy in the first quarter, the highest pace since the 2001 recession, Avondale Partners analyst Donald Broughton said.
Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, wasn’t so sure that capacity would drop as much as others expect.
“Our members are much more selective about what they haul,” he said. “We are seeing the little guys hang in there better than in 2001 and 2002. The people who are out there now are in much better control over how long they stick around.”
The state of carrier-shipper relations also is a factor in the rate picture. When the four carrier executives were asked if their best customers treated them well in the current weak freight environment, Smith said no.
“We are going to take care of those customers who value our services,” Fuller said. “The ones that don’t value our service, and go to the next guy who comes along with a cheaper rate, I am not so sure I am going to take care of them.”
Moyes chose another approach, saying, “Some customers have been very good to us.”
This story appears in the May 26 print edition of Transport Topics.
NEW YORK — Shippers can expect hefty rate increases from truckload carriers, possibly as early as next quarter, because shrinking capacity is bringing supply more in line with demand, said carrier executives and industry experts.
Top executives from Swift Transportation, U.S. Xpress Enterprises, CRST International and Covenant Transportation Group each delivered that message last week at the Wolfe Research Transportation Conference in New York.
Increases will range upward from 3%, excluding fuel surcharges, and possibly reaching 10%.
“When the pricing power comes back to us, and it will someday, I see some large rate increases coming,” said CRST Chief Executive Officer John Smith. “To get us healthy again, we are looking at 10%.”
That kind of jump would far exceed recent and historic increases. Rates per loaded-mile rose 0.4% in the first quarter to $1.586 from the year-earlier period at publicly traded companies, based on a Transport Topics review. Wolfe Research said in a report that truckload rates have risen at an average annual pace of 2% since 2000.
These new comments from carrier executives provide a specific time frame for increases that was missing when leaders of the publicly traded companies announced sharp earnings declines last month.
Smith predicted the highest potential increase although he was the least optimistic about when it would occur. For the dry van business, he said he expects no pricing improvement until the first or second quarter of 2009.
Jerry Moyes, chief executive officer of Swift, and Covenant CEO David Parker said they expected increases of about 3% to start in the third and fourth quarter. Max Fuller, co-chairman of U.S. Xpress, agreed on the timing, but measured in the increase as 10 cents a mile, without giving a percentage.
“Truckload rates should begin to rise in six months,” said Satish Jindel, president of SJ Consulting. “Supply is still ahead of demand, but the gap has been narrowed. At the same time, truckload carriers have begun to show some pricing discipline in the aftermath of the problematic situation created by the pre-buy of 2007 engines.”
Carriers increased their fleet size in 2006 by buying trucks with engines that did not have to meet stricter federal emission standards that took effect in 2007.
In addition to being above average, increases in the 3% range are far more than shippers’ current expectations, based on a customer survey by Wolfe. Shippers envision a truckload rate hike of 0.6% this year. The biggest rate increase gained by carriers was 4.1%, in the third quarter of 2005, according to Wolfe.
“We all feel like it [rate increase] is coming,” said Ed Wolfe, who founded his research firm after leaving Bear, Stearns & Co. earlier this year. “We are very hopeful that people are going to go away from the market and we will get pricing improvement.”
The closing of Jevic Transportation last week was the latest sign of a reduction in capacity.(Click here for related story.)
Jindel said small “mom and pop” truckers who have been hit by higher fuel and insurance costs could exit the market even faster than the pace in the first quarter. A total of 935 carriers declared bankruptcy in the first quarter, the highest pace since the 2001 recession, Avondale Partners analyst Donald Broughton said.
Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, wasn’t so sure that capacity would drop as much as others expect.
“Our members are much more selective about what they haul,” he said. “We are seeing the little guys hang in there better than in 2001 and 2002. The people who are out there now are in much better control over how long they stick around.”
The state of carrier-shipper relations also is a factor in the rate picture. When the four carrier executives were asked if their best customers treated them well in the current weak freight environment, Smith said no.
“We are going to take care of those customers who value our services,” Fuller said. “The ones that don’t value our service, and go to the next guy who comes along with a cheaper rate, I am not so sure I am going to take care of them.”
Moyes chose another approach, saying, “Some customers have been very good to us.”
